FTX's former top lawyer aided U.S. authorities in Bankman-Fried case
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[January 05, 2023] By
Angus Berwick
(Reuters) -FTX's former top lawyer Daniel Friedberg has cooperated with
U.S. prosecutors as they investigate the crypto firm's collapse, a
source familiar with the matter said, adding pressure on founder Sam
Bankman-Fried who was arrested on criminal fraud charges last month.
Friedberg gave details about FTX in a Nov. 22 meeting with two dozen
investigators, the person said. The meeting, held at the U.S. Attorney
for the Southern District of New York's office included officials from
the Justice Department, Federal Bureau of Investigation, and the U.S.
Securities and Exchange Commission, the source said. Emails between
attendees scheduling the meeting with those agencies were seen by
Reuters.
At the meeting, he told prosecutors what he knew of Bankman-Fried's use
of customer funds to finance his business empire, the source said.
Friedberg recounted conversations he had with other top executives on
the subject and provided details of how Bankman-Fried's hedge fund
Alameda Research functioned, the source said.
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Friedberg's cooperation has not been previously reported. He has not
been charged and has not been told he is under criminal investigation,
the source said. Instead, he expects to be called as a government
witness in Bankman-Fried's October trial, the person said.
Friedberg's lawyer, Telemachus Kasulis, the FBI and FTX did not respond
to requests for comment on his cooperation. The SEC, the Department of
Justice and Bankman-Fried's spokesman declined to comment.
Bankman-Fried is accused of diverting billions of dollars in FTX client
funds to Alameda to bankroll venture investments, luxury real estate
purchases, and political donations. On Tuesday, he pleaded not guilty in
Manhattan federal court.
Manhattan U.S. Attorney Damian Williams, who is leading the criminal
case against now bankrupt FTX, said last month: "If you participated in
misconduct at FTX or Alameda, now is the time to get ahead of it."
Two of Bankman-Fried's closest associates, Caroline Ellison, Alameda's
former chief executive, and Gary Wang, FTX's former chief technology
officer, pleaded guilty to fraud and agreed to cooperate. A lawyer for
Ellison didn't respond to a request for comment. Wang's lawyer declined
to comment.
MEETING WITH PROSECUTORS
FTX filed for bankruptcy protection on Nov. 11. A few days later, on
Nov. 14, Friedberg received a call from two FBI agents based in New
York. He told them he was willing to share information but needed to ask
FTX to waive his attorney-client privilege, according to a person
familiar with the matter and emails viewed by Reuters.
Friedberg wrote to FTX the next day asking the company to waive his
privilege so he could cooperate with prosecutors, according to the email
seen by Reuters. FTX did not do so, but agreed with Friedberg on the
points he could disclose to investigators, the person said.
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![](../images/010523PIX/busine91.jpg)
An FTX logo is seen through broken glass
in this illustration taken, December 13, 2022 REUTERS/Dado Ruvic/Illustration
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Friedberg then wrote back to the two FBI agents, telling them in an
email reviewed by Reuters: "I want to cooperate in all respects."
The U.S. Attorney's Office set up a meeting where Friedberg signed
so-called proffer letters prepared for him by the SEC and other
agencies, according to the source and an email exchanged by
participants. Proffer letters typically describe a potential
agreement between authorities and individuals who are witnesses or
subjects of an investigation.
"THROUGH THICK AND THIN"
Prior to his work advising FTX, Friedberg advised a mix of banking,
fintech, and online gaming companies.
One of his previous employers, a Canadian online gaming firm named
Excapsa Software, where he was general counsel, also drew
controversy due to a cheating scandal involving a poker site it
operated called Ultimate Bet. A Canadian gaming commission in 2008
fined Ultimate Bet $1.5 million for failing to enforce measures to
prevent fraudulent activities. Excapsa has since dissolved.
According to an audio recording available on the website PokerNews,
Friedberg and some other Ultimate Bet associates privately discussed
that year how to handle the scandal and minimize the amount of
refunds owed to players. Friedberg previously told NBC News that the
audio was illegally recorded but NBC's article did not say that
Friedberg challenged its authenticity.
Friedberg first represented Bankman-Fried in 2017 as outside counsel
while at U.S. law firm Fenwick & West, where he chaired its payment
systems group, the source familiar with the matter said. At the
time, the source said Friedberg advised Bankman-Fried on running
Alameda, which he founded that year.
In 2020, when Bankman-Fried launched a separate exchange for U.S.
customers called FTX.US, Friedberg moved in-house as FTX's chief
regulatory officer.
In a now-deleted blog post published that year on FTX's website,
Bankman-Fried wrote that Friedberg was FTX's legal advisor "from the
very beginning," noting he had been "with us through thick and
thin."
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Friedberg resigned from his position on Nov. 8, a day after Bankman-Fried
disclosed to top executives that FTX was almost out of money,
according to the source and three other people briefed on the talks,
along with text messages his legal team exchanged at the time.
(Additional reporting by Hannah Lang; editing by Megan Davies and
Anna Driver)
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