FTX troubles double with $500 AI sale suspension and hush money accusations 

FTX has found itself caught in a swirling whirlwind of trouble akin to a digital tornado that shows no signs of abating. As if navigating the stormy seas of the crypto world wasn’t challenging enough, the failed crypto exchange now finds its woes doubling, with a suspension of $500 AI sales and the ominous whispers of hush money accusations.

According to a lawsuit, former compliance officer Daniel Friedberg paid whistleblowers to prevent them from revealing the “true fraudulent nature” of the exchange. In addition, it has been reported that the sale of FTX’s $500 million stake in artificial intelligence startup Anthropic has been halted.

FTX accuses former exec of paying ‘hush money’ to silence whistleblowers

FTX has filed a lawsuit against a former regulatory and compliance executive at the exchange, alleging that he paid a series of bribes to keep employees from blowing the whistle on the exchange’s problems.

On June 27, the exchange filed a lawsuit against Daniel Friedberg, who served as FTX’s chief regulatory officer, FTX US’s top compliance officer, and Alameda Research’s general counsel.

According to the complaint, the defunct crypto exchange says Friedberg was a “fixer” for the exchange’s co-founder Sam Bankman-Fried, whose father pushed for Friedberg to be given a key role:

Joe Bankman, Bankman-Fried’s father, urged Bankman-Fried and others to give Friedberg a central role and to keep Friedberg ‘in the loop…so we have one person on top of everything.

Complaint

Friedberg allegedly paid two potential whistleblowers “hush money” to prevent them from disclosing information regarding “regulatory issues” and the alleged close connections between FTX and Alameda.

In one alleged instance, Friedberg allegedly retained the attorney of a whistleblower after paying them, “thereby buying or otherwise ensuring their silence,” according to the complaint.

In the 40-page filing, FTX unleashed 11 civil accusations alleging, among other things, Friedberg violated his legal responsibilities and authorized a series of fraudulent transfers and “loans” to other former crypto exchange executives.

Friedberg’s 22-month tenure at the exchange resulted in a $300,000 salary, a $1.4 million signing bonus, a $3 million cash bonus, an 8% stake in FTX US, and crypto “worth tens of millions” — all of which the failed crypto exchange is seeking to recover. Some portions of the complaint, particularly those concerning the quantities paid to the whistleblowers, are redacted.

John Ray, chief of restructuring for FTX, alleged in a report dated June 26 that an unnamed senior attorney “facilitated and covered up” the mixing of customer funds.

The Wall Street Journal reported on the same day that the unnamed attorney was Daniel Friedberg, citing sources familiar with the situation. Friedberg was also identified as a source of information for U.S. Attorney’s Office investigators.

FTX’s $500M sale of anthropic stake hits a roadblock

Reportedly, the sale of FTX’s $500 million stake in artificial intelligence startup Anthropic has been placed on hold, delaying the bankrupt crypto exchange’s efforts to fill a $2 billion hole in its balance sheet.

FTX pauses Anthropic sale. Wise move.

Selling losers first is crucial.

Anthropic tokenisation might also synergise well with FTX 2.0, as an exclusive listing. pic.twitter.com/WJd900JBYw

— FTX 2.0 Coalition (@AFTXcreditor) June 27, 2023

Bloomberg reported on June 27 that the exchange’s advisory investment bank, Parella Weinberg Partners, halted the sale of it’s Anthropic stake this month, despite the fact that multiple parties were interested in purchasing FTX’s stake.

A transfer of the stake would result in a substantial financial recovery for the crypto exchange. According to a report released on June 26 by FTX restructuring chief John Ray, approximately $7 billion in misappropriated user funds have been recovered.

Multiple buyers were reportedly interested in the exchange’s Anthropic stake prior to the halt. Semafor reported in early June that the exchange was marketing the AI company to potential investors.

At the time of its bankruptcy in November, the exchange held Anthropic stock worth $500 million, which is expected to be worth significantly more now that the AI boom is in full gear.

The report on the halting of the transaction comes just days after Ray’s report on the alleged misuse of customer funds by FTX stated that the company still had $2 billion in assets to potentially recover.

FTX Debtors released their second investigative report, which details the commingling and misuse of customer deposits at https://t.co/Svd0COiEpS by FTX Group’s previous management team: https://t.co/jtz3vI0jBY

— FTX (@FTX_Official) June 26, 2023

The exchange’s co-founder Sam Bankman-Fried’s younger sibling, Gabe Bankman-Fried, is alleged to have invested in venture capital firms, a $243 million Bahamian real estate portfolio, and a political action committee.