Friedberg gave details about FTX in a November 22 meeting with two dozen investigators, including officials from the Justice Department, Federal Bureau of Investigation, and the U.S. Securities and Exchange Commission. At the meeting, he provided information about FTX founder Sam Bankman-Fried's use of customer funds to finance his business empire and details about how Bankman-Fried's hedge fund, Alameda Research, functioned. Friedberg has not been charged and is told he is under criminal investigation. He is expected to be called a government witness in Bankman-Fried's October trial.
Bankman-Fried Pleads Not Guilty to Criminal Fraud Charges
Sam Bankman-Fried, the founder of FTX, was arrested on criminal fraud charges last month. He is accused of diverting billions of dollars in FTX client funds to his hedge fund, Alameda Research, to finance venture investments, luxury real estate purchases, and political donations. On Tuesday, Bankman-Fried pleaded not guilty in Manhattan federal court. Two of his closest associates, Caroline Ellison, Alameda's former CEO, and Gary Wang, FTX's former CTO, have already pleaded guilty to fraud and agreed to cooperate with authorities.
Friedberg's Cooperation with Prosecutors
FTX filed for bankruptcy protection on November 11. A few days later, Friedberg received a call from two FBI agents in New York. He told them he was willing to share information but needed to ask FTX to waive his attorney-client privilege. Friedberg wrote to FTX the next day asking the company to waive his privilege so he could cooperate with prosecutors, but FTX did not do so. However, the company did agree on the points that Friedberg could disclose to investigators. Friedberg then wrote back to the two FBI agents, telling them in an email that he "want[ed] to cooperate in all respects." The U.S. Attorney's Office set up a meeting where Friedberg signed proffer letters prepared for him by the SEC and other agencies. Proffer letters typically describe a potential agreement between authorities and individuals who are witnesses or subjects of an investigation.
FTX's Collapse and Bankruptcy
FTX filed for bankruptcy protection on November 11, citing "irreparable damage" to its business due to the criminal fraud charges against Bankman-Fried and the negative media attention surrounding the case. The company stated that it could not continue operating due to the significant withdrawal of customer funds and the loss of liquidity. In its bankruptcy filing, FTX listed assets of $5 billion and liabilities of $5.5 billion.
The collapse of FTX has had far-reaching consequences, affecting not only the company's customers and employees but also its business partners and investors. Many of FTX's customers have reported difficulty accessing their funds or have lost significant amounts due to the bankruptcy. The company's employees have also been impacted, with some losing their jobs due to bankruptcy. Additionally, FTX had partnerships with several major companies in the crypto industry, and the default has likely hurt those partnerships.
The Investigation into FTX and Bankman-Fried
The investigation into FTX and Bankman-Fried is led by the U.S. Attorney for the Southern District of New York, Damian Williams. Williams has stated that the investigation is ongoing and that individuals who may have participated in misconduct at FTX or Alameda should "get ahead of it." In addition to the criminal fraud charges against Bankman-Fried, the SEC has also filed civil charges against him and Alameda Research. The SEC's complaint alleges that Bankman-Fried and Alameda defrauded FTX's customers by misusing their funds and failing to disclose conflicts of interest.
Previous Controversies Surrounding Friedberg and Excapsa Software
Before his work at FTX, Daniel Friedberg advised a variety of banking, fintech, and online gaming companies. One of these companies was Canadian online gaming firm Excapsa Software, where Friedberg served as general counsel. Excapsa and its poker site, Ultimate Bet, were involved in a cheating scandal in 2008. A Canadian gaming commission fined Ultimate Bet $1.5 million for failing to enforce measures to prevent fraudulent activities. Excapsa has since dissolved.
