Matthew Huang, one of the co-founders and managing partners of Paradigm, a cryptocurrency investment firm, testified during the third day of the trial of Sam "SBF" Bankman-Fried in a federal court in New York. Huang revealed that Bankman-Fried was resistant to the idea of having investors on FTX's board, despite Paradigm and several other venture capital firms, including Sequoia, Temasek, and BlackRock, suffering significant losses due to their investments in the now-bankrupt cryptocurrency exchange. These firms have faced scrutiny over their investments in FTX and subsequent public statements.
Huang stated that Bankman-Fried didn't believe that having investors on FTX's board would make much of a difference. FTX's board of directors reportedly consisted of Bankman-Fried, an undisclosed attorney from Antigua and Barbuda (where FTX is incorporated), and Jonathan Cheesman, a former FTX executive who resigned from the board in June. Huang disclosed that he had several discussions with Bankman-Fried before Paradigm invested $125 million in FTX's $900 million Series B funding round, which concluded in July 2021.
Huang admitted that they didn't conduct sufficient due diligence and relied heavily on information provided by Bankman-Fried. Despite concerns about FTX's informal structure and its potential links to sister hedge fund Alameda Research, investors were attracted to FTX due to its rapid market share expansion in the crypto industry. Huang did express concerns that Bankman-Fried might allocate more time to Alameda instead of FTX, potentially jeopardizing Paradigm's investment.
Furthermore, there were concerns that Alameda might be receiving preferential treatment from FTX. Huang claimed that Bankman-Fried led him to believe that FTX didn't grant special privileges to Alameda. On the same day, FTX co-founder Gary Wang testified that Alameda had received nearly unrestricted funding flows from the exchange.
Huang also stated that he was unaware of any alleged mingling of funds between FTX and Alameda Research. When asked whether his decision to invest in FTX would have changed had he known that the exchange was allegedly using customer deposits for investment purposes, Huang replied affirmatively, emphasizing that customer deposits are typically considered sacrosanct.
