Former UltimateBet lawyer Dan Friedberg added as defendant in FTX class action

Haley Hintze
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Posted on: December 9, 2022 9:19 pm EST

Daniel S. Friedberg, the former UltimateBet attorney who played a primary role in trying to sweep the worst aspects of that site’s insider-cheating scandal under the rug, has been added to a growing list of defendants in a high-profile class action filed against numerous executives and celebrity endorsers of FTX, the cryptocurrency exchange that failed in spectacular fashion last month.

Friedberg, who shifted his legal practice into crypto-related matters after his employment opportunities in online gambling ran dry, served as FTX’s chief compliance officer after prior work as the company’s general counsel. Friedberg was one of four new defendants added to the third version of the class action. Other new defendants include FTX offshoot Alameda Research’s CEO Caroline Ellison, former Alameda CEO Sam Trabucco, and FTX co-founder Gary Wang.

The class action’s growing list of defendants begins with Sam Bankman-Fried, FTX’s primary founder and CEO. A long list of professional athletes and other celebrity endorsers, who the plaintiffs accuse of false representations in promoting FTX, have also been sued. That list of celebrity endorsers includes Tom Brady, Gisele Bundchen, Stephen Curry, the Golden State Warriors, Shaquille O’Neal, Udonis Haslem, David Ortiz, William Trevor Lawrence, Shohei Ohtani, Naomi Osaka, Larry David, and Kevin O’Leary.

The updated lawsuit was filed on Wednesday in the United States Southern District of Florida. The 51-page complaint replaces two earlier versions of the class action filed last month. The latest amended version now names five plaintiffs: Gregg Podalsky, Gary Gallant, Skyler Lindeen, Alexander Chernyavsky, and David Nicol. If certified as a class action, hundreds or thousands of plaintiffs could be added at a later date.

Amended complaint notes Friedberg’s dark online-poker background

Daniel Friedberg (Source: Reddit)

The complaint’s addition of Friedberg as a defendant includes background not only on his roles at FTX, but on his earlier role at UltimateBet as well. Last month, PokerOrg published a detailed history of Friedberg’s misdeeds at UltimateBet in the cheating scandal centered on Russ Hamilton, as well as subsequent transgressions at the site that later acquired UltimateBet, Absolute Poker.

The complaint’s current focus on Friedberg runs to several paragraphs, as follows, and includes the claim that FTX and its investment offshoot, Alameda, had its own form of a “god mode” that allowed Alameda’s in-house transactions to bypass FTX’s normal system controls (Point 93, below):

  1. Daniel S. Friedberg was the chief compliance officer at FTX, the person who oversaw FTX’s compliance initiatives before it imploded. He joined the firm in March 2020, and was instrumental in perpetuating its nefarious activities, in part by helping to cover up any indications that the FTX scheme was unraveling.
  2. Although Friedberg was supposed to be the adult in the room overseeing the operations of the FTX empire, he did so thousands of miles away, remotely, from Seattle, Washington. As FTX’s chief regulatory officer, Friedberg was tasked with monitoring customer protection practices, ensuring product offerings complied with existing rules and overseeing internal audits and reviews. He did none of this.
  3. Friedberg has also been tied to an online poker scandal in 2008, where Ultimate Bet’s founder Russ Hamilton was accused of installing a “God Mode” on his gambling platform that only certain players had access to – resulting in an estimated $50 million in misappropriated funds. (Author’s note: Hamilton was not a founder of UltimateBet, but was a second-round investor.)
  4. In a surreptitiously recorded file, Friedberg reportedly advised Hamilton to claim he was a victim of the UltimateBet “God Mode” scam, and push blame on an unnamed consultant to the company who exploited the site’s servers. The audio recordings were published in 2013 under uncertain circumstances and have not been independently verified by CoinDesk. (The recordings have been authenticated by several online-poker authorities — HH)
  5. “I did take this money and I’m not trying to make it right, Dan, so we gotta get that out of the way right away, real quick,” Hamilton allegedly said in the audio recording. Hamilton also founded the World Champion online poker platform. (The last line may be a confused reference to Hamilton winning the 1994 WSOP Main Event, which has long carried the ceremonial honor “World Champion” — HH)
  6. Veteran short seller Marc Cohodes, one of the few to publicly question the rapid rise of FTX before its fall in a September interview with trading-focused webcast Hedgeye, had noted the potential conflicts of hiring someone connected to a cheating scandal to oversee compliance at the $32 billion FTX exchange.
  7. Similarly here, Dan Friedberg in his role as Chief Compliance Officer oversaw both FTX and Alameda, which had its own “god mode,” i.e., Alameda was secretly exempted from FTX’s auto-liquidation protocols.
  8. Friedberg’s penchant for duplicity to make legal problems vanish for his corporate paymasters didn’t end with UB’s demise. NBC News recently reported on a 2020 incident involving SBF’s promotion of the Ethereum-based COVER Protocol and the unfortunate experience of one Dave Mastrianni, an investor who was prevented from cashing out his $400,000 in paper winnings due to “insufficient liquidity” on FTX before the COVER token cratered.
  9. When Mastrianni contacted FTX to accuse SBF of having a “pump and dump” role in the debacle, Friedberg called back with an offer. How would Mastrianni, a graphic artist, like a job creating NFTs for FTX? Friedberg offered Mastrianni an ‘adviser’ contract that would pay him one BTC for 30 days’ work, but it also required Mastrianni to absolve FTX, Alameda, and its affiliates of any responsibility for Mastrianni’s COVER losses.
  10. Mastrianni eventually agreed, but while he did receive that one BTC, FTX never accepted any of his artwork. Freidberg later emailed to inform him that the payment “was primarily for your release of all claims” and, with that goal accomplished, FTX had no more reason to maintain this subterfuge.
  11. In August, the Federal Deposit Insurance Corporation (FDIC) sent a letter to Friedberg and then-FTX US CEO Brett Harrison to “cease and desist” using marketing language that could have been erroneously interpreted as saying that exchange users accounts were ensured by the federal banking regulator. Harrison subsequently deleted the tweet.
  12. Before joining FTX, Friedberg was a partner at Fenwick & West LLP, where he led the law firm’s cryptocurrency division, according to a now-deprecated LinkedIn page. He received a JD and MBA degree from the University of Wisconsin-Madison.

Poker world had largely lost track of Friedberg and other UltimateBet lawyers

Friedberg, along with two other scorned UltimateBet attorneys, Stuart Hoegner and Sanford “Sandy” Millar, shifted their practices into crypto-related laws when that industry sprang to life last decade. Friedberg maintained a low profile for several years, leading to shock throughout the crypto world when his earlier role in one of online poker’s darkest roles received renewed attention.

Meanwhile, much of the poker world had lost track of Friedberg and the other UltimateBet corporate attorneys, who were generally persona non grata within the gambling industry. One ofpoker’s most famous players, Tom Dwan, was shocked to learn of Friedman’s roles at FTX. Dwan had become a friend of Bankman-Fried and had played poker with and become familiar with other FTX execs. However, Dwan knew nothing about Friedberg’s FTX presence; earlier, at UltimateBet, Friedberg would have gladly short-shrifted Dwan and thousands of other UltimateBet players, and at FTX he was again in a role where he could impact Dwan’s financial worth.

Another controversy centers on Friedberg’s ability to provide any sort of legitimate or adequate oversight for Bahamas-based FTX, a multi-billion-dollar concern, from his Seattle home thousands of miles away. Almost two decades ago, Friedberg relocated from Wisconsin to Seattle, only a couple of hours from UltimateBet’s corporate home in Portland, Oregon. It was early in UB’s existence, and several UB execs had strong ties to the Seattle area, including former UB vice president Jon Karl, who would later build a home on exclusive Whidbey Island, just north of Seattle.

Friedberg’s home base in Seattle also served as a link to UltimateBet’s acquisition of and merger with Absolute Poker, when the two sites together became the Cereus Network. While Absolute Poker was founded by a group of University of Montana frat brothers led by another inside cheater, Scott Tom, the early development and investment-recruiting work was done in the basement of the suburban Seattle home of Scott’s father, Philip Tom.

Featured image source: FTX