FTX’s former head of regulation linked to the online poker scandal

The top “regulator” at fallen crypto exchange FTX was involved in a notorious online poker cheating scandal more than a decade ago – and was caught on tape for helping the perpetrators of the scam, according to reports.

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

In the alleged scheme — which reportedly claimed actor Ben Affleck among its victims — between 2005 and 2008, employees were accused of using a software exploit called “God Mode”[ads1]; to con players out of anywhere between $20 million and upwards of $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 the FTX company earlier this month when it filed for bankruptcy, appears to have scrubbed his LinkedIn account, which now displays a “this page does not exist” message. Online bios for Friedberg said he joined FTX after a stint at Seattle-based law firm Fenwick & West, where he led the payment systems practice.

FTX, meanwhile, has taken down an “about” page that listed short bios for top executives, including disgraced ex-CEO Sam Bankman-Fried, FTX co-founder Gary Wang and Friedberg, as well as links to their LinkedIn pages.

The UltimateBet scandal arose after revelations that some of the site’s employees used the software exploit to look at opponents’ cards under their hands and place bets accordingly.

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

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

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

“I think, for the public, it just has to be: ‘Former consultant for company exploited server error by hacking into client, unable to identify exactly when,'” Friedberg reportedly said on the tape, dictating a script in an attempt to shortchange victims of the scam.

Friedberg even advised Hamilton to claim that he too was a victim of the scandal because “otherwise it’s not going to fly.” He acknowledged on tape that the liquidator for Excapsa, the software firm that owned UltimateBet, had $47m on hand for potential payouts – but that executives wanted to limit the total to no more than $5m.

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

At one point in the recording, Hamilton admitted his guilt while addressing Friedberg directly.

“I took this money and I’m not trying to do it right, Dan, so we’ve got to get it out of the way right now, very quickly,” Hamilton said.

The footage was widely covered by poker media when it first emerged, including Poker News, which pointed out the connection between FTX, Friedberg and the UltimateBet scandal last week. Poker.org also posted a look back at Friedberg’s UltimateBet saga – speculating about possible parallels with FTX.

“Friedberg almost certainly would have served an important legal and functional role in finding ways to make FTX’s services and structure appear legitimate in the eyes of financial regulators worldwide,” Poker.org’s Haley Hintze wrote last week.

Posten could not immediately determine whether Friedberg had any disciplinary measures due to his involvement with UltimateBet. A Daniel S. Friedberg with expertise in banking and securities remains listed as eligible to practice law on the Washington State Bar Association website.

In the 2008 segment, “60 Minutes” reported that “jurisdictional issues” had prevented any criminal charges from being brought against Hamilton or others involved in the scandal. The 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 FTX client funds to prop up Alameda Research, a cryptocurrency trading house he also owned. At least $1 billion of those funds are still missing.

In a court filing Thursday, FTX’s new CEO John Ray III criticized what he described as a complete lack of regulatory guardrails in the company’s oversight of the platform under previous management — and declared the situation worse than what he faced while running the notorious energy company. Enron through its bankruptcy.

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

Friedberg’s past raised alarm bells in the cryptocurrency sector long before FTX’s downfall. In August 2021, cryptocurrency news site CoinGeek noted that FTX’s decision to select Friedberg as head of regulation was “almost comically inappropriate” given his past.

CoinGeek’s Steven Stradbrooke noted that it “remains somewhat of a mystery” how Friedberg “managed to avoid being banned” after the footage surfaced.

“Friedberg’s presence on FTX’s payroll means that Sam Bankman-Fried (SBF) either didn’t do his pre-employment due diligence, or he knew about Friedberg’s past sins and didn’t care. Neither of these options paint Sam Bankman-Fried in an overly flattering light,” Stradbrooke wrote.

Elsewhere, short-seller Marc Cohodes pointed to Friedberg’s involvement while predicting FTX’s fall during a September 3 appearance at the Hedgeye Investing Summit — a full two months before the platform crumbled.

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

“If you hit Dan Friedberg’s LinkedIn, there’s no mention of his time on the poker site, there’s no mention of that, but he’s the chief f-king regulatory officer for FTX, which is a big f-king job,” Cohodes said .

“FTX either knew they were hiring a regulator who was part of a card cheating scandal, they either knew, or he covered it up and got hired,” Cohodes added.

Posten has contacted Friedberg, Bankman-Fried and FTX for comments.

So far, Friedberg has been quiet about what happened at FTX despite his presumably large role in the firm’s oversight. A mention of his involvement appeared in a recent Wall Street Journal article, which quoted a friend who had dinner with Friedberg the day he resigned.

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