Since the birth of their daughter in December 2014, the Hollywood couple have kept her away from the press.
Lively shared the first photo of Reynolds and their six-month-old daughter on Father's Day, but James' face is completely hidden by baby carrier.
Speaking about his friend's betrayal to GQ, Reynolds said: "A guy that I’d known for my whole life, one of my closest friends growing up, he had been shopping pictures of my baby around.
"I kind of got in front of it, which is good. But it was a slightly dark period. A bad couple of weeks… It was like a death. It was like one of those devastating things to find out."
Reynolds, who said the photos were of his family, including one of them in the delivery room, admitted he hasn't spoken to his friend again since the incident happened.
When asked about his friend's motivations for trying to sell the snaps he added: "Just for money. I mean, I don’t think he thought he would ever be caught.
"It’s just, 'Oh, well, now I’m never going to see you or talk to you again, unfortunately.' That’s kind of how it worked out."
Aside from revealing his friend's disloyalty, Reynolds gushed about how much he loved fatherhood.
He added: "I have no problem waking up five times in the middle of the night and changing diapers, and as exhausted as you get, I have this stupid grin on my face all the time."
Reynolds married Lively in 2012, after meeting during filming in 2010.
Shortly after their daughter James was born, the 38-year-old actor spoke about his excitement about being a hands-on dad.
He told People magazine: "It's amazing that you can be that exhausted and that happy at the same time."
"I'm good with diapers and all that kind of stuff because I have lots of nieces and nephews, so I’ve done it all before. I’m just excited about having a buddy."