The top “regulatory officer” at the fallen crypto exchange FTX was embroiled in a notorious online poker cheating scandal more than a decade ago – and was caught on tape, according to reports allegedly aiding the perpetrators of the fraud.
Dan Friedberg – an attorney who was FTX’s chief regulator in the months leading up to the collapse and who also served as a general counsel – had also served as attorney for UltimateBet, whose collapse was considered one of the biggest online gambling scandals in the world at the time. the history.
The alleged scheme — which reportedly involved actor Ben Affleck as one of the victims — accused employees between 2005 and 2008 of using a software exploit called “God mode” to charge players between $20 million and more than $50. million away.
The scandal caught the attention of CBS News’ “60 Minutes” and spawned a cult documentary called “UltimateBeat: Too Much To Lose.”
Friedberg, who reportedly resigned from the FTX company earlier this month when it filed for bankruptcy, appears to have since purged his LinkedIn account, which now displays a “this page does not exist” message. Online bios for Friedberg said he joined FTX after a stint at Seattle-based law firm Fenwick & West, where he chaired the payment systems practice.
FTX, meanwhile, has removed an “about” page with brief biographies of its top executives, including disgraced ex-CEO Sam Bankman-Fried, FTX co-founder Gary Wang and Friedberg, as well as links to their LinkedIn pages.
The UltimateBet scandal arose after revelations that some of the site’s employees used the software exploit to peek at online opponents’ cards during hands and bet accordingly.
In 2008, the Kahnawake Gaming Commission, the Canadian-based regulatory body that licensed UltimateBet, said it had found “clear and compelling evidence” that UltimateBet co-owner and advisor Russ Hamilton was “primarily responsible” for the scam , along with a handful of accomplices.
Friedberg’s involvement came to light after recordings of his conversations with the poker site’s top buyers were leaked to the public in 2013. The footage was captured during an early 2008 meeting between Hamilton, Friedberg and other executives and was reportedly leaked by Travis Makar, Hamilton’s longtime assistant. .
Friedberg can be heard on tape discussing how UltimateBet should respond and handle questions from the media. Friedberg also advised corporate executives on a strategy to limit payouts to victims by withholding the size of the scheme.
“I think for the public it should just be, ‘Former consultant to the firm took advantage of a server failure by hacking into the client, unable to identify exactly when,'” Friedberg reportedly said on the tape, while giving a script dictated. in an attempt to wrong the victims of the fraud.
Friedberg even advised Hamilton to claim that he was also a victim of the scandal because “it wouldn’t fly otherwise”. He acknowledged on tape that the liquidator of Excapsa, the software company that owned UltimateBet, had $47 million on hand for possible payouts — but that executives wanted to limit the total to no more than $5 million.
“If we can get it down to five, I’d be happy,” Friedberg added of possible payouts.
At one point in the recording, Hamilton admitted his guilt while addressing Friedberg directly.
“I took this money and I’m not trying to make it right, Dan, so we need to get that out of the way right away, real quick,” said Hamilton.
The recordings were widely reported by poker media outlets when they first surfaced, including Poker News, which last week pointed to the connection between FTX, Friedberg and the UltimateBet scandal. Poker.org also posted a look back at 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 appear 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 taken disciplinary action over 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 criminal charges from being brought against Hamilton or others involved in the scandal. The tapes revealing Friedberg’s involvement did not come to light until years after the Kahnawake Gaming Commission released its findings.
Bankman-Fried allegedly transferred $10 billion in FTX client funds to support Alameda Research, a cryptocurrency trading house he also owned. At least $1 billion of those funds are still missing.
In a lawsuit on Thursday, FTX’s new CEO, John Ray III, criticized what he described as a complete lack of regulatory guardrails in the company’s oversight of the platform under previous leadership – stating that the situation was worse than what he encountered while driving the 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 information as here,” Ray said in the filing.
Friedberg’s past set alarm bells ringing in the cryptocurrency sector long before FTX went under. In August 2021, cryptocurrency news site CoinGeek noted that FTX’s decision to appoint Friedberg as chief regulatory officer was “almost comically inappropriate” given his past.
CoinGeek’s Steven Stradbrooke noted that it “remains a mystery” how Friedberg “managed to avoid being suspended” after the recordings surfaced.
“Friedberg’s presence on the FTX payroll means that Sam Bankman-Fried (SBF) either didn’t do his due diligence before he was hired, or he knew about Friedberg’s past sins and didn’t care. None of these options portray Sam Bankman-Fried in an overly flattering light,” Stradbrooke wrote.
Elsewhere, shortseller Marc Cohodes hinted at Friedberg’s involvement as he predicted FTX’s demise during a Sept. 3 appearance at the Hedgeye Investing Summit — two full months before the platform’s collapse.
At the time, Cohodes, which has a reputation for exposing fraud, argued that FTX was “dirty and rotten to the core.”
“If you click on Dan Friedberg’s LinkedIn, his time on the poker site isn’t mentioned, nothing is mentioned about it, but he’s FTX’s chief regulatory officer, which is a great job,” said Cohodes. .
“Either FTX knew they hired a regulatory chief who was part of a card fraud scandal, or they knew that, or he covered it up and got hired,” Cohodes added.
The Post has contacted Friedberg, Bankman-Fried and FTX for comment.
So far, Friedberg has been quiet 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 on the day of his firing.
The source said that during the dinner, Friedberg was “visibly shocked” and that the ex-FTX attorney had shown them a text message he supposedly sent to Bankman-Fried, which read: “One day I hope I can can forgive.”