FTX, Daniel Friedberg, Stu Hoegner and (many) Sunless Friday

November 18, 2022

Home » Alternative » FTX, Daniel Friedberg, Stu Hoegner and (many) Sunless Friday

Digital asset exchange FTX’s harrowing descent into financial catastrophe has distressing echoes of the 2011 crackdown on online poker sites, with avid sketch players like Dan Friedberg and Stu Hoegner making appearances in both. The latest Friday financial catastrophe for FTX and some 130 subsidiaries – including US-licensed exchange FTX.US and market maker Alameda Learn – has yet to be dubbed ‘Sunless Friday’ by the crypto community in large part, but it aptly describes the overall mood at hand. A wide range of companies that lent funds to FTX/Alameda or the fragile FTX for asset storage will no doubt confess the full extent of their miserable judgment in the days and weeks to come. As anyone who started writing about gambling exchanges helped when Bush was president, last Friday brought back painful memories of April 15, 2011, also known as Sunless Friday, when the U.S. Department of Justice (DOJ) indicted 11 individuals associated with the world's three largest online poker corporations: PokerStars, Rotund Tilt Poker (FTP), and Absolute Poker (AP). The DOJ simultaneously seized the sites' dot-com domains and froze more than 75 bank accounts around the world. I spent that weekend drinking espresso and releasing frantic updates as the fallout unfolded. A few days later, the DOJ reached an agreement with the indicted companies to release their seized funds for the sole purpose of returning the myth balances to U.S. gamers. It quickly became apparent that one of the many companies (PokerStars) was actually in a position to do so because others had completely ignored the strict separation of client funds and working capital. High stakes poker players are notorious for lending each other fairly large sums of money as their person's fortunes rise and fall. Some of the official FTP-backed players have 'spun out' thousands upon thousands of dollars of client account space, it seems as if it were in keeping with the perception of the account operators that they would never come across a real neighborhood where all their potential would simultaneously be tied to withdrawals from their full balances. AP and its sister property, Final Bet (UB), were also

caught with their monetary pants down. In any case, both FTP and AP/UB were down, although the impression of Rotund Tilt was maintained by PokerStars, which, as the supreme responsible company within the group, took responsibility for saving users from the unreasonable charges of companies indicted as part of the DOJ’s handling of the matter. There will certainly be no such bailout for FTX users, nor for the traders who invested huge sums in FTX/Alameda. Despite the fact that since these traders – no longer retail users – had more than a few reasons to abolish due diligence and instead chose to pile FTX/Alameda owner Sam Bankman-Fried (SBF) on their conscience, screw him. There is also no doubt that there will be salvation for the endless digital asset companies that FTX promised to power in the wake of this spring’s offering of Terraform Labs’ UST/Luna tokens, which led to a tsunami of insolvencies/bankruptcies that continues to this day.

How is the balance? https://t.co/Av5KzQxHX1

— Jacob Silverman (@SilvermanJacob) November 16, 2022 As a passing aside, this text was printed by creator Jacob Silverman ( @SilvermanJacob), who tweeted on Tuesday expressing his wish that everyone would be kinder to Daniel S. Friedberg/

Stuart Hoegner nexus. Silverman has since deleted the tweet, perhaps in the myth that he now plans to incorporate this attitude into the ebook he is writing with Ben McKenzie . That’s the one detail we can get rid of soon, Jacob, but I hope it helps. Absolute shitshow. Of the poker sites indicted, the AP/UB saga is the one that most closely resembles the recent FTX situation. AP was basically founded by some frat boys who fancied themselves programmers, while FTX was basically founded by some MIT geniuses who became monetary quants. In both cases, they lacked the specific journey of running an industry. In both cases, the companies launched as their respective industries were exploding in popularity. And in both cases, their immediate success left them feeling like they were much more brilliant and accomplished than they had been before. There’s also the insignificant truth that both UB and FTX share some executive DNA in the brainchild of Daniel S. Friedberg, FTX’s chief compliance officer. As we’ve detailed over the past 300 days, Friedberg joined FTX in March 2020 as the exchange’s full-time attorney before handing over that role to Ryne Miller (who in the latter case has his hands full trying to explain FTX’s shenanigans while Friedberg is, like a model, trying to discontinue under the radar). Friedberg has eliminated all UB degrees from his official resume, but he did help get the degree in 2001, thanks to his connection with poker official Phil Hellmuth. Hellmuth and Friedberg had studied together at the University of Wisconsin-Madison, and Friedberg was acting as Hellmuth’s private attorney when the official was asked to invest in a fledgling online poker game. UB in the breakout grew into a lucrative business that spun out into several utility divisions, with the poker aspect under the Excapsa banner. In early 2006, Excapsa welcomed none other than Stuart Hoegner—the most recent general counsel for Bitfinex and Tether—as its sole chief compliance officer and to help set up the company for its planned listing on the London Stock Exchange. Later that 300 and sixty-five days, Excapsa was listed on the LSE's AIM index, but was suddenly delisted after U.S. President George W. Bush signed the Law on the Enforcement of Illegal Cyber Games on the Web (UIGEA) in October 2006. The UIGEA, as it became known, prohibited financial institutions from knowingly processing payments on behalf of online gambling companies. This rule prompted the major UB owners to 'sell' their operations to a non-American private company that conveniently also purchased Absolute Poker. The two sites were in the process of being merged into the exclusive Cereus Network, but maintained the fiction that they were separate operations. The proceeds of the UB 'sale' remained a bone of contention for years to come, with many minority traders complaining that they were left out in the cold and launching vertical moves to accumulate a chance to squeeze in a bigger payout. The company actually known as Excapsa did not live to tell the tale of the transition to Cereus, but Friedberg was able to pivot to a higher vertical feature at AP. Here he helped to realize yet another fine property development that was longed for by a Norwegian company known as Madeira Fjord and a subsidiary on a tax-free island off the Portuguese coast. Traders were told to get details of annual returns of 12%, but in 2009 they learned that the operation was somehow losing nearly $34 million in 300 and sixty-five days. This was partly attributed to $10 million in annual payments to rent the poker utility that the company was supposed to rely on and $18 million in payments to various 'consultants'. (Did we point out that Hoegner started not one but two gaming-focused regulatory firms in January 2007?) Meanwhile, the company's founders continued to enjoy their opulent lifestyles in their Central American mansions. That is, except for the Sunless Friday hit. The Tangled Web We Weave Friedberg's not-so-fine hour came in 2013, long after AP/UB/Cereus had been shut down by the DOJ, through the release of an audio recording of a UB members' meeting held in early 2008. The meeting included Friedberg, fellow attorney Sanford 'Sandy' Millar, UB co-founder Greg Pierson, and a poker official named Russ Hamilton, who also owned a stake in UB. Prior to that meeting, Hamilton and a few insiders were caught using a part of the UB utility known internally as 'God mode'. God mode allowed you to search for a bunch of blank cards from gamblers, ostensibly to allow service engineers to verify that their product was working as advertised and (satirically) to observe the dishonesty/collusion of gamblers. Hamilton and several other cheaters began using it as early as 2003 to invent losses whenever their successes ended at the legitimate tables. Before avid gamblers discovered the scam in late 2007, Hamilton and several other cheaters had stolen tens of thousands and thousands of dollars in unfair winnings from unsuspecting gamblers. In further contradiction to the alleged split between AP and UB, an identical cheating scandal was brewing at AP at the same time. (And because the statement presented this week by the sole CEO from FTX revealed, SBF weakened your confidence in 'god mode' in the invention of a “secret exemption by Alameda from certain aspects of FTX.com’s auto-liquidation protocol.”) Alameda was secretly exempted from FTX's auto-liquidation protocols. LITERALLY GOD MODE. photo. twitter.com/dxnZRMjxXj— wassielawyer (@wassielawyer) November 17, 2022 Hamilton secretly recorded the 2008 crisis meeting between himself and Friedberg as a quilt-your-ass precaution. Not that he forced it, as Friedberg intended to minimize the company's monetary liabilities to its duped avid gamblers, in part by the use of “slick” messaging to pay affected gamblers pennies on the money stolen from them. Friedberg also proposed a scheme to pin the blame for the scandal on an anonymous Excapsa employee they planned to accuse of hacking the dealership’s client. Friedberg lobbied hard for Hamilton to publicly name himself among the former employee’s phantom victims in order to help sell this myth to the general public. Excapsa, which was in liquidation at the time, was eventually forced to contribute $15 million in shareholder money to reimburse affected gamblers. In yet another echo of FTX’s “customer money is our money” methodology, one of the fragile funds to compensate affected AP/UB gamblers was allegedly purchased from unaffected participants. pant, including the unfunded liabilities that poker sites faced when the Sunless Friday charges were issued. Don’t rip the anger, just rip Friedberg’s penchant for duplicity inventing real problems to disappear for his company’s payers did not end with the demise of UB. NBC News The Daily Beast has recently reported on a 2020 incident involving SBF’s promotion of the Ethereum-based Quilt Protocol and the miserable journey of Dave Mastrianni, an investor who was prevented from withdrawing his $$400,000 in paper gains due to “inadequate liquidity” on FTX before the COVER token crash. When Mastrianni contacted FTX to accuse SBF of having a “pump and dump” approach to the debacle, Friedberg asked for help with a proposal. How would Mastrianni, a graphic artist, like a job creating NFTs for FTX? Friedberg provided Mastrianni with an “advisor” contract that might pay him one BTC for 30 days of work, but also required Mastrianni to absolve FTX, Alameda, and their friends of any liability for Mastrianni’s COVER losses. Mastrianni eventually agreed, but while he received that BTC, FTX never released any of his artwork. Freidberg later emailed him to tell him that the cost “was basically for your release of all claims,” and with that purpose done, FTX no longer had any reason to heap care on this subterfuge. Hoegner/Tether/FUD Admire SBF's post-monetary catastrophe promises that he would make it all up right, UB's dishonest cronies were not lacking in audacity. Pierson changed his name to Iovation, a digital security company that provides player verification and fraud detection for many online gambling sites. (Based primarily on the 'it takes one to catch one' principle, we snort.)

15) Just a few weeks ago, FTX was facing around US$10 billion/day of volume and billions of transfers.

But there was a huge impact – bigger than I imagined. The financial crisis and market fracture had dried up liquidity. So what can I try to do about it? Increase liquidity, create full potential and reset.— SBF (@SBF_FTX) November 16, 2022As for UB's lawyers, after Sunless Friday, Friedberg, Hoegner and Millar somehow ended up in the 'crypto' recreation, with Friedberg and Hoegner occasionally acting in the identical convention panels (And this panel points out Dan’s lofty rhetoric about the need for strict regulatory compliance, which sounds extraordinarily ironic given his recent space.) In some ways, this pivot to digital sources was no surprise, since online gaming at the time was all about cost-effective processing. But should you listen to Friedberg lay out a target market—as recently as 2013—that he “worked very carefully with Stuart on all of these considerations,” one’s conspiratorial spidey sense can’t help but tingle. The fact that Hoegner ended up in a key role at the company that issued the controversial Tether stablecoin and Friedberg ended up working for SBF – whose corporations drank deeply into Tether’s trough – raises questions regarding how carefully the pair could perhaps rely on conspiring to bring the new crypto space to fruition. As evidence of SBF’s legal duplicity mounts – including the simultaneous listing of identical sources on FTX and Alameda’s balance sheets to create the specter of solvency – the pressure is mounting on Tether to come up with more than a mere attestation of the monetary reserves allegedly backing the more than $68 billion USDT in circulation. Particularly since Alameda was certainly one of the two largest recipients of all USDT issued, the majority of which was when we thundered funneled into the FTX online casino. Hoegner and Tether CTO Paolo Ardoino have been urged on endless instances referring to the need for greater transparency, but proceed to brush aside any and all considerations with a wave of their hands. Anyone who dares to report on the legitimacy of Tether’s reserves is accused of spreading FUD (misery, uncertainty, and doubt). It’s telling that some of Tether’s biggest supporters are also some of its biggest BTC's Biggest Drivers. (Friedberg himself wrote an alarmist opinion piece (The entire process through the 2016 Block Measurement Wars warned of “serious consequences and unquestionably legal liability” for any network that dared to mine BTC.) The various BTC/Tether stalwarts include Adam Help from Blockstream, who claims to abide by a code of “Don’t believe it. Study it.” And yet these same participants accept fragile certificates reasonably than a third-party audit of Tether's reserves, no doubt in the myth that they know USDT-BTC trading is the ultimate factor preventing the overall digital asset market from imploding. As unpleasant as the hidden wave of 'liquidity' (read: insolvency) issues is, surely one of the many companies caught cooking their books could or might rely on the same effect as confirmation that Tether is the mere emperor it claimed to be John 'The Wad' Holmes, but is actually Pee Wee Pamplemousse. Be aware that SBF itself once characterized Tether founder Giancarlo Devasini as being “very upset with the people he sees as… shitting on his companies for no good reason to do so. Now that SBF has been exposed as a fraud, how certain is it that the people who helped out with the stablecoin his companies relied on to perpetrate their fraud are equally fraudulent? The Professor Fails More than 300 and sixty-five days after Sunless Friday, Rotund Tilt co-founder and chairman Howard Lederer submitted to an extensive interview to provide his take on the company’s donation strategy. Lederer was not indicted in Sunless Friday, but was later charged by the DOJ with defrauding FTP avid gamers as part of a “Ponzi Scheme world.” Lederer eventually settled the civil claim for forfeiting funds worth more than $2.5 million, but managed to avoid jail time. Lederer's offensive video interview—which saw him ditch his poker nickname of 'The Professor' in favor of something like a scholarly 'D'—sparked an uproar among many avid poker players over his (a) refusal to admit any wrongdoing and (b) claims of ineptitude for the monetary malfeasance that occurred in his sting. The parallels between Lederer's denial and the foul-mouthed justifications SBF has set up shop after the FTX financial catastrophe. SBF is no doubt hoping to fragment Lederer’s fate – admit no wrongdoing, dump a few thousand and thousands in meager health-related earnings, and return to society as a remade, stable citizen. No SBF inquiry is impressed by the wild remarks made this week by the likes of Kevin ‘Mr. Gorgeous’ O’Leary that he would lend a hand in a unique SBF venture on the grounds that – despite all evidence to the contrary – SBF “was certainly one of the most excellent traders in the crypto space.” A low bar, admittedly. Financial institution shot Some of the online poker Sunless Friday charges have resulted in prison sentences, including for John Campos, vice president and co-owner of Utah-based SunFirst financial institution. Campos pleaded guilty by agreeing to mislabel online poker payouts as non-controversial transactions in exchange for a $10 million loan from the struggling SunFirst. The financial institution was shut down by Utah authorities in November 2011, and Campos was sentenced to 300 months in jail and 65 days. Indeed, concerns are mounting regarding the fate of Deltec Financial Institution and Trust, the Bahamas-based financial institution that conducts the industry on behalf of FTX and Tether, as well as several large crypto companies. This week, Deltec felt compelled to release a statement denying the “Malicious and completely unfounded” rumors that FTX helped finance Deltec’s acquisition earlier this year of local rival Ansbacher Monetary Institution & Trust. Deltec has also insisted that it is “no longer a creditor of FTX.” US-based monetary institution Silvergate has also worked with FTX, and for the past 300 days, Silvergate has been processing transactions for the integrity-challenged Binance exchange. Silvergate shares fell more than 17% on Tuesday to $$ $29.36, a far cry from their price of nearly $150 just this spring. Be careful, Silvergate has tumbled along with a host of crypto-centric stocks with modest gains. Silvergate recovered some ground on Wednesday, rising 6.7%, but fell another 11% to $$ $27.90 on Thursday. Last week, Silvergate sought to calm the waters by declaring that “our relationship with FTX is insignificant for deposits” and others accounted for less than 10% of the bank’s total deposits. But longtime FTX critic/summary seller Marc Cohodes went public on Tuesday along with his plans to inform Silvergate according to your peek that there is more (or much less) here than the myth.

The FTX situation gets complicated. All Americans need to look into this. ???? #Silvergate RETWEET pic.twitter.com/RqAcpQtnkx

— TaraBull (@TaraBull l808) November 15, 2022 The question that is certainly dominating traders’ minds is who else among the Silvergate potentials could be secretly under the hammer. We now know that FTX/Alameda took a much bigger hit from the rocky results of this spring’s UST/Luna giveaway than the SBF was willing to publicly admit. Now, in the wake of the FTX giveaway, each day brings exclusive details of companies on the brink. Who could perhaps be the next domino to fall? Wednesday’s e-newsletter from Incriminating text messages from SBF to a Vox the creator Doesn't seem to give him much wiggle room in terms of avoiding prison, unless narcissistic personality disorder and/or insanity is his intended defense. But SBF likely has enough internal dust up in a lot of numbers about this case—particularly given his intense dealings with Tether—that he could perhaps be in a position to cut a sweeter deal than many seek details of. Assuming he isn't found ineffective in his cell because of a 'suicide,' of course. Let's close with evil for joy schadenfreude. As I wrote the last 300 and sixty-five days, FTX’s hiring of Friedberg “calls into question not only Sam Bankman-Fried’s dedication to compliance, but also his general judgment. If you’re on a prolonged roll and are the subject of countless flattering media profiles, the temptation to portray yourself as infallible tends to push you upward. Such rises no longer come regularly without a fall, and SBF/FTX appear to be headed for a doozy.” Be vigilant, get involved with crooks, and sooner or later you’ll be born making a fantasy. And when one of us repeats who they are, judge them. Practice Sequence of CoinGeek's crypto crime cartel, which investigates the circulation of groups -from BitMEX for Binance, Bitcoin.com, Blockstream, Shapeshift, Coinbase, Ripple,
Ethereum, FTX, and Tether—trusted to have co-opted the digital asset revolution and turned exchange into a minefield for naive (and even experienced) avid market players. Unusual for Bitcoin? Strive CoinGeek's Bitcoin for Beginners, the ultimate practical handbook for learning more about Bitcoin – as first envisioned by Satoshi Nakamoto – and blockchain.

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FTX, Daniel Friedberg, Stu Hoegner and (many) Sunless Friday

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