Legality vs loyalty - what to do?

I worked on an IT project as a subcontractor for a manager I considered a friend. After he told me that the project was important to his career, with lofty career goals, I worked hours for him that I was not paid for. I did inform my employer that I was doing that - but apparently the information was ignored. When the project got close to being over - with time and money pressures the manager pushed me to work harder and more hours. As I was looking for a new job, a recruiter told me about wage and hour laws, and that the manager was committing a crime by signing my timesheet stating I worked less hours than I did. To further complicate matters my employer came back and asked if I had unpaid hours that I should claim. When I hesitated, he asked why I was protecting the (explitive) manager. But the fact is that I was and am protecting him, because I did what I did to help him to his career goals. But now I feel trapped because I really don't approve of what he did - having not before realized both that it was illegal, and also that my employer now blames me for not telling him so he can charge for the time. To add to that - I figured out how MUCH time I wasn't paid for and it amounts to $35K+ money I really could use - and by law apparently could still get if I asked for it. The thing is that I still feel loyalty to the manager, and he did do nice things for me at times, helping me through personal stresses I was dealing with - even if he also in turn added to my stress. But the bottom line is that I still do care for him. But I don't know what to do...