FTX’s former compliance chief Daniel S. Friedberg hasn’t yet been charged for his role in the digital asset exchange’s downfall, but his history repping criminal online poker sites seems destined to catch up with him eventually.
The Wall Street Journal recently reported on the all-thumbs trading history of Alameda Research, the market-maker of the FTX digital asset exchange, both of which were owned by Sam Bankman-Fried (SBF). In mid-December, SBF was criminally and civilly indicted by the U.S. Department of Justice (DoJ), the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for engaging in fraud and money laundering to delay the inevitable collapse of his insolvent ‘crypto’ ventures.
The WSJ reported that SBF reached out to numerous deep-pocketed investors in 2018 as Alameda’s hapless traders incurred major losses by continually misjudging how the crypto market would move. To assist these fundraising efforts, Friedberg, a partner at the Seattle-based Fenwick & West LLP, wrote a letter to potential investors assuring them that “we know the owner of Alameda and consider him of the highest reputation in the industry.”
FTX launched the following year, and Friedberg was appointed its chief regulatory officer (Friedberg also served as Alameda’s general counsel). The appointment was downright comical given Friedberg’s previous stint with Ultimate Bet (UB), an online gambling site that, with its sister site Absolute Poker (AP), were involved in insider cheating scandals that stole millions of dollars from poker players. Friedberg actively conspired to cover up the scandal and reduce the amount of restitution owed to affected players.
Tethers lawyer admits that he worked with FTX's General Counsel, and how he learned a lot from him.
He's talking about Daniel Friedberg.
— Bitfinex'ed 🔥🐧 Κασσάνδρα 🏺 (@Bitfinexed) December 25, 2022
The two sites went belly-up after being among those indicted by the DoJ on April 15, 2011, which came to be known as ‘Black Friday’ in the online gambling world. The sites were charged with (among other things) money laundering via a system that “arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls.”
Friedberg would likely have been intimately familiar with this type of financial subterfuge and it may well have been why SBF was so eager to employ him. The Bahamas-based FTX/Alameda appears to have adapted this system so FTX could continue dealing with U.S. customers while evading U.S. regulatory scrutiny.
The fourth dimension
The SEC’s complaint against SBF cited the billions that FTX customers had indirectly deposited to the exchange via a convoluted workaround involving an Alameda subsidiary called North Dimension Inc. SBF directed customers to deposit via North Dimension, whose website offered no indication of any ties to FTX/Alameda, to disguise the fact that these funds were instead going to Alameda (the funds were then credited to FTX customer accounts but not actually transferred to FTX).
North Dimension was incorporated in Delaware in August 2020, its incorporation papers drawn up by none other than Friedberg’s Fenwick & West. Last week, NBC News reported further details on North Dimension’s now-disabled (but archived) website, noting that it “appears to have been a fake electronics retailer.”
Registered in Hong Kong in November 2021, North Dimension’s website is replete with garbled English and most internal links default to the ‘about’ page. The site offered phones and laptops with prices sometimes far above their list value, while ironically declaring a goal to “build trust in eliminating counterfeits and assisting our users in making informed purchasing decisions.” The site’s ‘contact’ page lists the same Berkeley, California address that FTX’s U.S.-based offshoot FTX US called home.
In October 2022, just one month before FTX’s bankruptcy filing, a second North Dimension website was registered in Ontario, Canada with a dot-org address. This barebones site features only an ‘about’ page that purports to represent “a financial services company” offering “mature and stable fund management, liquidity, and payment processing services.” Pouring it on thick, this North Dimension promises to bring “the sophistication we have all come to expect from mainstream financial institutions in the realm of cryptocurrencies.” Ahem.
Black Friday’s failed poker companies employed similar tactics, “creating phony corporations and websites to disguise payments” sent to the poker sites. These phony company names would “strongly imply the transaction has nothing to do with” online poker and would use whatever names “the processor can get approved by the bank.” (In May 2021, SBF went on record saying Alameda appended the name ‘Research’ because banks were more likely to welcome doing business with a ‘research institute’ than a crypto exchange.)
Friedberg isn’t a complete stranger to U.S. authorities, having been directly named in a ‘cease & desist’ letter by the Federal Deposit Insurance Corporation (FDIC) last August. FTX US was one of several companies spanked by the FDIC for falsely implying that customer deposits were FDIC-insured.
As such, it remains something of a mystery as to why, given his centrality in the FTX/Alameda saga, Friedberg has yet to be charged with any crime. Then again, perhaps the DoJ et al consider Friedberg to have been too inept an attorney to be complicit in SBF’s crimes.
For instance, Friedberg doesn’t always appear to have a solid grasp of legal fundamentals. Shortly after FTX’s bankruptcy filing, he tried to retroactively apply an ‘off the record’ position in a discourse with NBC News. When NBC pointed out the inapplicability of this position, Friedberg ghosted NBC’s subsequent requests for comment. (That’ll show ‘em.)
Still, U.S. authorities seem eager to drop the hammer on all FTX/Alameda principals, so Friedberg, whose whereabouts are currently unknown, remains very much in jeopardy. And with a growing number of company bigwigs already cooperating with the authorities—Alameda CEO Caroline Ellison and FTX co-founder Gary Wang in the U.S., former FTX Digital Markets co-CEO Ryan Salame in the Bahamas—those who show up late will likely find all the window seats taken.
"As a brief aside, this article was inspired by writer Jacob Silverman (@SilvermanJacob), who tweeted Tuesday expressing his desire for someone to shed more light on the Daniel S. Friedberg/Stuart Hoegner nexus"
Thanks for writing it!https://t.co/Pw3li5BdZy
— Jacob Silverman 🤌🪨 (@SilvermanJacob) November 20, 2022
This site has previously speculated that, given there’s no one above him on the FTX/Alameda pyramid, SBF is likely to offer the feds some dirt on his BFFs at the Binance exchange or the Tether stablecoin. Both companies have closets positively bursting with skeletons and their formerly tight relationships with SBF leave them vulnerable to SBF playing his ‘cooperating witness’ card.
That is, unless Friedberg gets there first. Tether’s general counsel is one Stuart Hoegner, who formerly worked with Friedberg at Ultimate Bet. Following Black Friday, both lawyers reinvented themselves as crypto advisers, and as far back as 2013 Friedberg was publicly bragging to Bitcoin conference attendees that he “works closely with Stuart on a lot of these issues.”
So let's review:
Tether's main lawyer is Stuart Hoegner, from the UltimateBet poker cheating scandal.
FTX's General Counsel/Chief Compliance, Daniel Friedberg, is also from the UltimateBet poker cheating scandal.
Let's check out UltimateBet's domain name.
— Bitfinex'ed 🔥🐧 Κασσάνδρα 🏺 (@Bitfinexed) December 10, 2022
Like SBF, Friedberg may also be able to shed more light on Alameda’s curious early-2022 decision to take a $10 million stake in FBH Corp, which acquired a tiny bank in Washington state the previous year. FBH is owned by Jean Chalopin, chairman of the Bahamas-based Deltec Bank & Trust, whose customer ranks included Alameda, FTX and Tether.
Acquiring a stake in a tiny bank was another major feature of the online poker indictments. John Campos, vice-chairman/part-owner of Utah’s SunFirst Bank, agreed to miscode online poker payments to evade banking regulators’ scrutiny. In exchange, SunFirst received a $10 million investment—coincidentally (or not), the same amount Alameda invested in FBH.
While SunFirst was eventually rumbled by the feds, this tactic did enable $200 million in poker payments to get where they needed to go. And with SBF increasingly desperate for cash as Alameda’s bad bets continued, Friedberg—who would have been all too aware of the SunFirst gambit—may well have been in a prime position to suggest alternative methods of ensuring customers could continue to funnel fresh deposits to FTX.
If he hasn’t already, we strongly suggest that Friedberg hire a lawyer. A good one. Preferably one with a history of upholding the law, not breaking it.
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