Former FTX chief regulatory official linked to online poker scandal

The top “regulatory official” of fallen crypto exchange FTX was implicated in the notorious online poker cheating scandal more than a decade ago – and was reportedly caught on tape aiding the fraud’s perpetrators, according to reports.

Dan Friedberg—a lawyer who was FTX’s chief regulatory officer in the months before its collapse and who also served as its general counsel—also served as legal counsel for UltimateBet, whose collapse was considered one of the biggest online gambling scandals. in the history of that time.

In the alleged scheme, which reportedly included actor Ben Affleck as victims, employees were accused of using a software exploit called “God Mode” between 2005 and 2008 to fleece players of between $20 million and $50 million.

The scandal received coverage from CBS News’ “60 Minutes” and spawned a cult documentary called “UltimateBeat: Too Much To Lose.”

Friedberg, who reportedly resigned from FTX earlier this month when it filed for bankruptcy, has apparently since purged his LinkedIn account, which now displays a “this page does not exist.” An 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.

Meanwhile, FTX pulled an “about me” page that included short bios 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 arose after it was revealed that some of the site’s staff were using this software exploit to view opponents’ online cards during hands and place bets accordingly.

In 2008, the Kahnawake Gaming Commission, the Canadian regulatory body that licensed UltimateBet, said it “found clear and convincing evidence” that Russ Hamilton, co-owner and consultant of UltimateBet, “was the principal person responsible” for the fraud, along with a handful of accomplices.

Friedberg’s involvement surfaced after tapes of his conversations with top poker site officials were leaked to the public in 2013. The tapes were made during a meeting between Hamilton, Friedberg and other executives in early 2008 and were allegedly leaked by Travis Makar, Hamilton’s longtime assistant. .

Friedberg can be heard on tape discussing how UltimateBet should respond and address media inquiries. Friedberg also advised company executives on a strategy to limit payouts to victims by containing the scale of the scheme.

Dan Friedberg
Dan Friedberg was the regulatory officer of FTX.

“I think for the public it just has to be, ‘A former company consultant exploited a server bug by hacking into a client without identifying exactly when,'” Friedberg reportedly said on tape, dictating the script. in an effort to shortchange victims of fraud.

Friedberg even advised Hamilton to claim he was also a victim of the scandal because “otherwise it won’t fly.” He admitted on tape that the liquidator of Excapsa, the software firm that owned UltimateBet, had $47 million available for potential payouts — but that executives wanted to limit the total to a maximum of $5 million.

“If we can get it down to five, I’ll be happy,” Friedberg added of the potential payouts.

At one point on the tape, Hamilton admitted his guilt while addressing Friedberg directly.

UltimateBet
UltimateBet players have reportedly won $20 million or more.

“I took the money and I’m not trying to fix it, Dan, so we need to get this out of the way immediately, real quick,” Hamilton said.

The tapes were widely covered by the poker media when they first emerged, including Poker News, which last week highlighted the connection between FTX, Friedberg and the UltimateBet scandal. Poker.org also published a retrospective of Friedberg’s UltimateBet saga – and speculated about possible parallels with FTX.

“Friedberg would almost certainly play an important legal and operational role in finding ways to make FTX’s services and structure look 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 any disciplinary action over his involvement with UltimateBet. Daniel S. Friedberg, with expertise in banking and securities, is still listed as eligible to practice law on the Washington Bar Association website.

“60 Minutes” said in its 2008 segment that “jurisdictional issues” prevented any criminal charges from being filed against Hamilton or others involved in the scandal. The audio tapes revealing Friedberg’s involvement did not surface until years after the Kahnawake Gaming Commission released its findings.

Bankman-Fried allegedly transferred $10 billion in client funds to FTX to help prop up Alameda Research, a cryptocurrency business he also owned. At least $1 billion of those funds are still missing.

In a court filing Thursday, new FTX CEO John Ray III criticized what he described as a complete lack of regulatory oversight on the platform under previous leadership — and said the situation was worse than what he encountered while running the notorious energy firm. Enron through its bankruptcy.

UltimateBet
Dan Friedberg advised UltimateBet executives on how to respond to the scandal.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of credible financial information as here,” Ray said in the filing.

Friedberg’s past raised alarm bells in the cryptocurrency sector long before the fall of FTX. In August 2021, cryptocurrency news website CoinGeek noted that FTX’s decision to use Friedberg as chief regulatory officer was “almost comically inappropriate” given his background.

CoinGeek’s Steven Stradbrooke noted that it “remains something of a mystery” how Friedberg “managed to avoid expulsion” after the recordings surfaced.

Sam Bankman-Fried
Sam Bankman-Fried is the disgraced former CEO of FTX.
via Reuters

“Friedberg’s presence on the FTX payroll means that Sam Bankman-Fried (SBF) either did not do due diligence before hiring or knew about Friedberg’s past sins and didn’t care. Neither option paints Sam Bankman-Fried in a very flattering light,” Stradbrooke wrote.

Elsewhere, short seller Marc Cohodes pointed to Friedberg’s involvement when he predicted the fall of FTX during a September 3 appearance at the Hedgeye Investing Summit — a full two months before the platform collapsed.

At the time, Cohodes, who has a reputation for spotting fraud, claimed that FTX was “dirty and rotten to the core”.

“If you look at Dan Friedberg’s LinkedIn, there’s no mention of his time on the poker site, no mention of it, yet he’s the Chief Regulatory Officer of FTX, which is a big f-king job,” Cohodes said. .

“FTX either knew they had hired a chief regulatory officer who was part of the card fraud scandal, they either knew or they covered it up and got hired,” Cohodes added.

The Post has reached out to Friedberg, Bankman-Fried and FTX for comment.

Friedberg has so far been tight-lipped about what happened at FTX, despite his likely large role in overseeing the firm. His involvement was hinted at in a recent Wall Street Journal article that quoted a friend who had dinner with Friedberg on the day of his resignation.

The source said that Friedberg was “visibly shaken” during the dinner and that the former FTX lawyer showed them a text message he allegedly sent to Bankman-Fried, which read: “One day I hope to forgive you.

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