IE 11 is not supported. For an optimal experience visit our site on another browser.

FTX’s regulatory chief had 4 job titles in 2 years. What was he really doing?

Before his years in crypto, Daniel Friedberg worked at an online gaming software company that was rocked by a cheating scandal in 2008.
Photo Illustration: A shadowy figure of a man in front of a glowing FTX logo
 NBC News / Getty Images

As chief regulatory officer for a crypto empire run by 20-somethings from a beach in the Bahamas, Daniel S. Friedberg was supposed to be the adult in the room. 

 Except he was 3,000 miles away — in Seattle. 

This is just one of the extraordinary details to emerge in the aftermath of the collapse of FTX, the crypto operation founded by Sam Bankman-Fried, a major Democratic donor and former darling of the financial press. 

SBF, as he is known, has garnered most of the attention in the FTX crash, along with Caroline Ellison, the 28-year-old CEO of Alameda Research, its related hedge fund and trading firm. 

But Friedberg, a lawyer by trade, is also coming into focus given the array of key roles he assumed at the company during his almost two years there. His unusual résumé, with a stint at an online gaming software company rocked by a cheating scandal in 2008, raises questions about why he was chosen for key jobs in Bankman-Fried’s regime.

Dan Friedburg was Regulatory Officer at FTX.
Dan Friedberg was the chief regulatory officer at FTX.FTX

In addition to chief regulatory officer at FTX, Friedberg worked as its general counsel for a period and was an officer at Hawaii Digital Assets, a unit created in August. He also served as legal counsel for Alameda, the entity that allegedly used customer funds improperly, reports say.  Alameda also loaned Bankman-Fried and two top associates $1.6 billion, according to a report filed with the bankruptcy court by FTX’s new CEO. 

Prior to disclosures by investigators, it may be difficult to determine what Friedberg’s potential involvement was in the FTX debacle or what he actually did there. Some people who worked at FTX or did business with it told NBC News they’d never encountered Friedberg. When NBC News asked Friedberg to discuss his work for FTX and in online gaming, he declined the request. 

As FTX’s chief regulatory officer, however, Friedberg would have been tasked with monitoring customer protection practices, ensuring product offerings complied with existing rules and overseeing internal audits and reviews, experts said. Early indications from the recent bankruptcy court filing by FTX’s new CEO, are that none of that oversight happened at FTX, which is now under investigation in the U.S. and the Bahamas, according to news reports. 

In August, for example, the Federal Deposit Insurance Corporation sent a cease-and-desist letter to FTX US, demanding that it stop alluding to FDIC guarantees on its products. 

Company officials had “made false and misleading statements, directly or by implication, regarding FTX US’s deposit insurance status,” the FDIC said in a notification sent to Friedberg and Brett Harrison, then-president of FTX US.

Harrison subsequently deleted a tweet the FDIC had objected to, saying the company had not meant to mislead anyone.

“The sad reality is, the economics of their business lined up with the traditional financial world, but they weren’t operating within any of those traditional financial rules,” said Tyler Gellasch, chief executive of Healthy Markets Association, a nonprofit that advocates for investors. “Those rules do help to protect investors from these types of risks where your firm fails.” 

 Ultimate Bet 

 A 1992 graduate of Williams College, Friedberg received an MBA and law degree from the University of Wisconsin in 1996, according to Martindale, a database of legal professionals. Admitted to the bar in Washington state in 1998, and practicing in Seattle, his specialties were securities, banking, partnerships and, later, cryptocurrencies.  

Early in his career, Friedberg became involved in online gaming; beginning in 1999, his name appears on corporate records as an agent for companies set up by Phil Hellmuth and Annie Duke, giants in the professional poker world. Friedberg’s years in online gaming did not appear on his LinkedIn profile, however, which vanished from the internet soon after FTX cratered. 

Hellmuth declined to discuss his work with Friedberg, and Duke did not respond to an email seeking comment.  

In its early years, online poker was beset by some of the same issues that roiled FTX: limited oversight, alleged self-dealing and outraged customers. 

By 2006, Hellmuth, Duke and Russ Hamilton, the 1994 World Series of Poker champion, were employed as marketing and promotional professionals by Excapsa Software, an online gaming software company in Toronto where Friedberg was an executive, according to a securities filing and affidavit by Friedberg included in a 2012 lawsuit against the company. Excapsa and its three units in Malta managed a poker network and licensed online gaming software applications, according to a 2006 investor presentation. Among its sites was Ultimate Bet.  

In early 2008, some high-stakes players on the Ultimate Bet site accused others of being able to see their cards and profiting on bets using that knowledge. The winning players were too lucky too often, the accusers said. 

It later emerged that tweaks to Ultimate Bet’s software — known internally as God Mode — allowed some players to see others’ hands, company news releases show. Wronged players estimated that some $40 million had been stolen from unwitting participants.  

In May 2008, Ultimate Bet acknowledged in a news release that “certain player accounts did in fact have an unfair advantage” and that “the individuals responsible were found to have worked for the previous ownership of Ultimate Bet,” or Excapsa. 

Ultimate Bet promised to refund affected players; a few months later, another news release said the cheating had been “enabled by illicit software that was placed on the Ultimate Bet servers prior to October 2006,” when it was acquired by a Malta-based company called Blast Off Ltd.  

Excapsa’s court-appointed liquidator, Sheldon Krakower, announced in November 2008 that the company was paying $15 million to Blast Off in exchange for a full release of all claims relating to the cheating allegations. In announcing the settlement, Excapsa confirmed that cheating had taken place on the site but made no admission of liability or wrongdoing as part of the settlement. Krakower did not return an email seeking comment.  

The Kahnawake Gaming Commission of Canada, which oversaw Ultimate Bet, said in a press release it had conducted an audit and “found clear and convincing evidence to support the conclusion that between the approximate dates of May 2004 to January 2008, Russell Hamilton, an individual associated with Ultimate Bet’s affiliate program, was the main person responsible for and benefiting from the multiple cheating incidents.” 

The commission imposed sanctions on Ultimate Bet, including a $1.5 million fine and requiring it to refund players’ accounts.

Hamilton declined to discuss the scandal. “I kept quiet and I didn’t say a word and I’m still not saying a word,” he said in a phone call with NBC News. 

As Ultimate Bet went about refunding affected players’ accounts, it kept its methodology secret, raising questions about accuracy, according to the 2012 lawsuit filed against Excapsa by some of the players. 

Ultimate Bet refused to supply histories of the poker hands that may have been involved, the lawsuit said, so the players could not determine whether the amounts of the refunds were correct. (The lawsuit brought by the players was subsequently dismissed.)  

In 2013, a bombshell dropped. Travis Makar, a computer expert and executive assistant to Hamilton, the poker champ, released audio recordings from 2008 in which Hamilton and some Ultimate Bet associates met to discuss how to deal with the scandal and refund players. In one of the few public glimpses of Friedberg, he speaks on the audio, suggesting that, in response to inquiries from players and press, they should say a consultant “took advantage of a server flaw by hacking into the client, unable to identify exactly when.”   

In discussing how much to refund the affected players, a potential figure of $5 million is floated by the participants at the meeting. “If we can get it down to $5 [million], I’d be happy,” Friedberg said on the recording. The audio recordings are widely available on websites and YouTube channels

Asked about the discussion, Friedberg said in a text: “Off the record: that audio was illegally recorded and it’s illegal for you to use it. I’m noting that you were informed of this.”   

NBC News had not agreed that the conversation with Friedberg was off the record and informed him that his text was on the record. He did not respond further, and it is unclear if he still works for FTX.  

In an interview with NBC News, Makar, the former Hamilton assistant who made the recordings, disputed that they were illegal and said he had never been sued over the recordings since he released them in 2013.   

Makar told NBC News he made the Ultimate Bet tapes because he was fearful his superiors would pin blame for the cheating software on him; on the audio, Hamilton says Makar will take responsibility. Makar said he learned about the capabilities of the software after his bosses asked him to help track down a rogue employee they suspected of theft.   

As he learned about the FTX mess and the practices identified by its new management in a recent bankruptcy court filing, Makar said he was reminded of his experience at Ultimate Bet. 

While he didn’t weigh in on Friedberg’s specific role at FTX, he sees parallels between the two companies’ situations.

“It sounds exactly like the same incident, on a bigger scale,” Makar said. 

FTX gets into gaming 

Online gaming has significant ties to cryptocurrency. The use of bitcoin, for example, solved a problem for the industry created by the 2006 Unlawful Internet Gambling Enforcement Act: how to pay out players’ winnings without attracting the attention of law enforcement or tax authorities. Some in the crypto crowd contend that bitcoin’s creator, the pseudonymous Satoshi Nakamoto, was a poker player. The first online poker game using bitcoin reportedly took place in 2010. 

Recently, Bankman-Fried seems to have recognized the merits in online gaming. Last April, FTX set up two new companies in Malta, a major jurisdiction for the industry. Although not yet operating when FTX collapsed, FTX Malta Holdings Ltd. and FTX Malta Gaming Services Ltd. appear in the company’s organizational chart filed with the bankruptcy court.  

Bankman-Fried was one of the three directors of FTX Malta Holdings, according to a report in crypto news site, along with a now-former FTX executive. (NBC News has not seen the document on which the report is based.) The third director was Arthur G.B. Thomas, who was until recently chairman of the Eastern Caribbean Securities Regulatory Commission, which licenses people in the securities business, promotes investor protection and maintains effective compliance and enforcement programs in the region. 

Thomas, who is also Antigua’s ambassador to the Czech Republic, did not return an email seeking comment about his role at FTX Malta.