In a recent development, Matthew Huang, co-founder and managing partner of crypto investment firm Paradigm, has testified in the ongoing trial of Sam “SBF” Bankman-Fried, the founder of FTX, a cryptocurrency exchange. Huang revealed that SBF was hesitant to include investors on FTX’s board of directors, believing that their presence wouldn’t bring significant value.
Paradigm, alongside venture capital firms like Sequoia, Temasek, and BlackRock, had invested in FTX, which eventually went bankrupt. These investors have come under scrutiny for their involvement with the troubled exchange and have issued statements addressing their investments.
Huang testified about his interactions with SBF before Paradigm’s $125-million investment in FTX during its $900-million Series B funding round in July 2021. He admitted to not conducting sufficient due diligence and relying heavily on information provided by SBF.
Doubts surrounding SBF’s priorities and FTX’s financial integrity
Despite concerns about FTX’s informal structure and its potential ties to its sister hedge fund, Alameda Research, investors were drawn by the exchange’s rapid growth in the crypto industry. However, there were worries that SBF might have been focusing more on Alameda than FTX, potentially jeopardizing Paradigm’s investment.
Furthermore, concerns were raised about preferential treatment given to Alameda by FTX, which could harm FTX’s reputation. SBF assured Huang that Alameda didn’t receive special treatment, but FTX co-founder Gary Wang testified that Alameda had access to a nearly unlimited capital flow from the exchange.
Huang also stated that he had no knowledge of any alleged mixing of funds between FTX and Alameda Research. When asked if his decision to invest in FTX would have changed had he known that customer deposits were allegedly being used for investments, Huang responded affirmatively, emphasizing the sanctity of customer deposits.
