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FTX, a bankrupt crypto exchange, has filed a lawsuit against its former chief compliance/regulator, Dan Friedberg, over his alleged conflicts of interest involving Sullivan & Cromwell (S&C) and Ryne Miller, the former US General Counsel of FTX. Friedberg claimed that S&C exploited Chapter 11 insolvency proceedings to obtain high service fees from FTX, resulting in over $40 million in charges since November 2022:
“Friedberg advised Bankman-Fried, his trusted inner circle, and the FTX Group on legal and compliance matters and major transactions, ignored the FTX Group’s glaring lack of internal controls, and served as a charged ‘fixer’, between others, to pay whistleblowers who threatened to expose the true fraudulent nature of the FTX Group business.
The lawsuit, in turn, brings serious allegations against Friedberg. He says Friedberg was hired under Sam Bankman-Fried – the former CEO and infamous founder of FTX – at the insistence of the father, who thought the company needed a dedicated supervisor, or “someone to to be above everything”. His compensation included an annual salary of $300,000, a signing bonus of $1.4 million, an 8% stake in FTX US and additional benefits, including a bonus of $3 million in 2021 and $30 million. dollars worth of Serum tokens.
The lawsuit also alleges Friedberg’s involvement in setting up several shell companies for FTX to open accounts, one of which had a bogus website selling electronics unrelated to FTX or Alameda. He also accuses Friedberg of making silent payments to silence potential legal threats:
“Many US banks were reluctant to do business with cryptocurrency companies […] Friedberg solved this problem by creating shell entities that hid FTX’s involvement.
When questions were raised about governance and regulatory issues, Friedberg reportedly offered severance packages rather than conducting proper investigations. The lawsuit further implicates him in arranging substantial loan deals to the founders of FTX, amounting to more than $2 billion, which remain unpaid.
FTX filed for Chapter 11 bankruptcy on November 11, 2022, followed by the resignation of SBF as CEO. Now, John Ray III, the exchange’s new CEO, is leading the bankruptcy proceedings. Ray began with a public internal audit last month to further “our stated goal of transparency.” The audit revealed that FTX owed clients approximately $7 billion in liquid assets.
This lawsuit against Friedberg is just the next step in offering some solace to FTX’s creditors.