New management at bankrupt crypto exchange FTX has filed a lawsuit against former Chief Compliance Officer (CCO) Daniel Friedberg, alleging he enabled fraud and paid "hush money" to prevent employees and their attorneys from exposing those fraudulent activities.

Just a couple of days after a scathing report by FTX's new CEO John J. Ray III claimed FTX intentionally misused and misappropriated customer funds prior to its November 2022 collapse, this new lawsuit could shed more light on the role that some prominent executives played.

FTX's Lawsuit Against Its Former CCO

FTX's filing includes multiple civil charges against Friedberg, accusing him of breaching his legal duties, approving fraudulent transfers, and granting loans to other former FTX executives. During his tenure at FTX, Friedberg allegedly received substantial compensation, including a $300,000 salary, a $1.4 million signing bonus, a separate $3 million cash bonus, 8% equity in FTX US, and crypto holdings worth tens of millions of dollars as of 2020. FTX is seeking to recover these assets through this legal action.

More specifically, the lawsuit claims Friedberg made payments to two unnamed potential whistleblowers, effectively silencing them and obstructing the disclosure of regulatory issues and the close ties between FTX and trading firm Alameda Research.

According to FTX's complaint, Friedberg acted as a "fixer" for a co-founder and former CEO Sam Bankman-Fried. Allegedly, Bankman-Fried's father advocated for Friedberg to have a central role within the organization. In addition to his role as FTX CCO, Friedberg was also the General Counsel for Alameda.

Specific details of the payments made to the whistleblowers are redacted in the complaint. However, one incident mentioned the provision of an "extraordinary settlement" of undisclosed value to a former female employee named "Whistleblower-1" who worked at FTX US for less than two months.

The settlement was in response to a demand letter alleging Alameda served as an extension of FTX and was used to manipulate investor confidence and inflate project prices. Furthermore, the lawsuit claims FTX signed an agreement to receive "general client counseling" from Whistleblower-1's attorneys at a rate of $200,000 for five years, a total value of $12 million, in an effort to keep them silent as well.

FTX also claimed Friedberg terminated an attorney, referred to as "Whistleblower-2," who expressed concerns about governance and regulatory issues within Alameda. This individual received a "severance package, even though Whistleblower-2 had worked at Alameda for less than three months," suggesting this was uncommon, even though the details of the package were redacted.

FTX Making Moves For A Comeback

According to the Wall Street Journal, bankrupt crypto firm FTX is now taking concrete steps to relaunch its international crypto exchange, which is an action that has been expected for some time. Ray said the company has initiated the process of seeking interested parties for the reboot of FTX.com through discussions with potential investors.

Additionally, Bankman-Fried's bid to have many of the criminal charges dropped that were related to his role in the FTX collapse was denied by a Manhattan judge on Tuesday.