Posted on: January 6, 2023, 05:37h.
Last updated on: January 6, 2023, 07:04h.
Daniel Friedberg, the former chief regulatory officer of collapsed crypto exchange FTX and one-time hotshot attorney for notorious online poker site UltimateBet (UB), is cooperating with the FBI, Reuters reports.
Sam Bankman-Fried’s FTX imploded in early November, leaving the company unable to repay more than $3 billion of customer funds.
Bankman-Fried, 30, is accused of diverting billions of his clients’ crypto to FTX’s hedge fund, Alameda Research, and from there using it to make risky trades and to finance investments and political donations.
Bankman Fried, Friedman Grilled
On November 22, Friedman was grilled by two dozen federal investigators in New York on what he knew about his former paymaster’s alleged malfeasance. That’s according to Reuters reporters who viewed emails between attendees at the meeting.
Friedberg spilled the beans on conversations he’d had with Bankman-Fried and other FTX executives, according to a Reuters source. He also told agents how Alameda functioned, the source said.
Friedberg has not been charged, nor has he been told he is under investigation, Reuters said.
In a 2020 FTX blog post, Bankman-Fried described Friedman as his chief lawyer “from the beginning,” who had been with the company “through thick and thin.”
UB Cheating Scandal
Back in 2008, when bitcoin was still just an obscure experiment, there was another tale of corporate malfeasance doing the rounds, and Friedberg was involved in that one, too.
UB, once among the biggest online poker sites in the US, was responsible for one of the the most notorious cheating scandals in the history of the game.
In 2008, it was confirmed that a so-called “God-Mode,” or “super-user” account that allowed a user to see their opponents’ cards in real-time,existed. And it had been used by UB employees to fleece players out of an estimated $20 million.
The Kahnawake Gaming Commission said it “found clear and convincing evidence” that UB shareholder and former World Series of Poker champion Russ Hamilton “was the main person responsible” for the cheating.
Caught on Tape
Five years later, audiotapes were leaked by Hamilton’s former assistant, Travis Makar. These allegedly recorded Hamilton, Friedberg, and other UB executives discussing their options for damage limitation around the time the scandal broke.
“I think, for the public, it just has to be, ‘former consultant to the company took advantage of a server flaw by hacking into the client, unable to identify exactly when,’” Friedberg allegedly said on the tape. He appeared to be discussing how to avoid repaying the full amount to victims.
Friedberg suggested Hamilton should claim he was also a victim because “otherwise, it’s not going to fly.” Friedberg also said he wanted to get the $20 million liability “down to five.”
I did take this money and I’m not trying to make it right, Dan, so we gotta get that out of the way right away, real quick,” Hamilton said.
All of those involved in the UB scandal escaped prosecution because of jurisdictional issues, and Friedberg was never disbarred.
Earlier this week Bankman-Fried pleaded not guilty in a Manhattan courtroom to criminal charges including fraud and conspiracy.
Reuters understands that Friedman expects to be called as a government witness against the fallen crypto mogul.
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