The chief ‘regulatory officer’ of fallen crypto exchange FTX was embroiled in a notorious online poker cheating scandal more than a decade ago – and was filmed helping the perpetrators of the fraud , according to reports.
Dan Friedberg – an attorney who was FTX’s chief regulatory officer in the months leading up to its collapse and who also served as general counsel – had also served as an attorney for UltimateBet, whose collapse was seen as the one of the biggest online gambling scandals. in history at the time.
In the alleged scheme – which allegedly made actor Ben Affleck one of its victims – employees between 2005 and 2008 were accused of using a software exploit called “God mode” to extort players between 20 million dollars and more than 50 million dollars.
The scandal was covered by CBS News’ “60 Minutes” and spawned a cult documentary titled “UltimateBeat: Too Much To Lose.”
Friedberg, who reportedly resigned from FTX earlier this month as it filed for bankruptcy, appears to have since deleted his LinkedIn account, which now displays a “this page does not exist” message. Friedberg’s online biographies said he joined FTX after a stint at the Seattle-based law firm Fenwick & West, where he led the payments systems practice.
FTX, meanwhile, removed an “about” page that lists short biographies of its top executives, including disgraced former CEO Sam Bankman-Fried, FTX co-founder Gary Wang and Friedberg, as well as links to their LinkedIn pages.
The UltimateBet scandal came after revelations that some employees of the site were using the software exploit to peek at online opponents’ cards during hands and bet accordingly.
In 2008, the Kahnawake Gaming Commission, the Canada-based regulator that licensed UltimateBet, said it had “found clear and compelling evidence” that UltimateBet co-owner and consultant Russ Hamilton “was primarily responsible “of the scam, accompanied by a handful of accomplices.
Friedberg’s involvement surfaced after tapes of his conversations with top brass at the poker site were leaked to the public in 2013. The tapes were taken during an early 2008 meeting between Hamilton, Friedberg and other executives and was reportedly leaked by Hamilton’s longtime assistant Travis Makar. .
Friedberg can be heard on tape discussing how UltimateBet should respond to and handle media inquiries. Friedberg also advised company executives on a strategy to limit payouts to victims by withholding the scope of the scheme.
“I think, for the audience, it must be, ‘Former firm consultant took advantage of server vulnerability by hacking into client, unable to identify exactly when,'” Friedberg allegedly said on the tape. , dictating a script in an attempt to deceive victims of fraud.
Friedberg even advised Hamilton to pretend he was also a victim of the scandal because “otherwise it’s not going to fly”. He admitted on tape that the liquidator of Excapsa, the software company that owned UltimateBet, had $47m available for potential payouts – but executives wanted to limit the total to no more than $5m.
“If we can get it down to five, I’d be happy,” Friedberg added of the potential payouts.
At one point during the taping, Hamilton admitted his guilt while addressing Friedberg directly.
“I took that money and I’m not trying to get it right, Dan, so we have to sort this out right away, real quick,” Hamilton said.
The recordings were widely covered by the poker media when they first surfaced, including Poker News, which highlighted the link between FTX, Friedberg and the UltimateBet scandal last week. Poker.org also published a retrospective on Friedberg’s UltimateBet saga – and speculated on possible parallels with FTX.
“Friedberg would almost certainly have played an important legal and functional role in finding ways to make FTX’s services and structure legitimate in the eyes of financial regulators around the world,” Poker.org’s Haley Hintze wrote last week.
The Post could not immediately determine whether Friedberg had been disciplined for his involvement with UltimateBet. A Daniel S. Friedberg with expertise in banking and securities is still listed as eligible to practice law on the Washington State Bar Association website.
In its 2008 segment, “60 Minutes” reported that “jurisdictional issues” had prevented any criminal charges from being filed against Hamilton or others involved in the scandal. Audio tapes revealing Friedberg’s involvement only emerged years after the Kahnawake Gaming Commission released its findings.
Bankman-Fried reportedly transferred $10 billion in funds from FTX clients to help support Alameda Research, a cryptocurrency trading house he also owned. At least $1 billion of these funds are still missing.
In a court filing on Thursday, new FTX CEO John Ray III criticized what he described as a complete lack of regulatory safeguards to corporate oversight on the platform under previous management – and said the situation was worse than he encountered while running an infamous energy company. Enron through its bankruptcy.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial reporting as has occurred here,” Ray said in the filing.
Friedberg’s past raised alarm bells in the cryptocurrency industry long before FTX fell. In August 2021, cryptocurrency news site CoinGeek noted that FTX’s decision to bring in Friedberg as chief regulatory officer was “almost comically inappropriate” given his background.
CoinGeek’s Steven Stradbrooke noted that it “remains a mystery” how Friedberg “managed to avoid being delisted” after the recordings were released.
“Friedberg’s presence on FTX’s payroll means that Sam Bankman-Fried (SBF) either failed to do due diligence before hiring, or that he knew of Friedberg’s past sins and didn’t care. Neither option paints Sam Bankman-Fried in too flattering a light,” Stradbrooke wrote.
Elsewhere, short seller Marc Cohodes highlighted Friedberg’s involvement while predicting FTX’s downfall during a Sept. 3 appearance at the Hedgeye Investing Summit — a full two months before the platform collapsed.
At the time, Cohodes, who has a reputation for uncovering the fraud, argued that FTX was “dirty and rotten to the core”.
“If you click on Dan Friedberg’s LinkedIn, there’s no mention of his time on the poker site, there’s no mention of it, but he’s the fucking head of regulation at FTX, which is a big job,” Cohodes said. .
“Either FTX knew they had hired a regulatory official who was part of a card cheating scandal, or they knew about it, or he covered it up and was hired,” Cohodes added.
The Post has reached out to Friedberg, Bankman-Fried and FTX for comment.
So far, Friedberg has remained silent about what happened at FTX despite his presumably large role in overseeing the company. A mention of his involvement surfaced in a recent Wall Street Journal article, which quoted a friend who had dinner with Friedberg the day he quit.
The source said Friedberg was “visibly shaken” over dinner and the former FTX lawyer showed them a text he allegedly sent to Bankman-Fried, which read, “One day I hope I I can forgive you”.
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