Sam “SBF” Bankman-Fried was “very reluctant” to have investors join the FTX board, says Matthew Huang, co-founder and managing partner of crypto investment firm Paradigm.
Paradigm and a number of venture capital firms, including Sequoia, Temasek and BlackRock, were burned by their funding of the now-bankrupt crypto exchange and have all faced increased scrutiny – and next issue declarations – on their investment in FTX.
Testifying on the third day of Bankman-Fried’s trial in New York federal court, Huang claimed Bankman-Fried thought having investors on FTX’s board wouldn’t bring much to the table.
FTX’s board of directors would consist of three people: Bankman-Fried, an unnamed lawyer from Antigua and Barbuda – the same country where FTX was incorporated – and Jonathan Cheesman, a former FTX executive who resigned from board of directors in June.
Huang engaged in a handful of conversations with Bankman-Fried ahead of Paradigm’s $125 million investment in the exchange’s massive $900 million Series B funding round closed in July 2021.
Huang admitted to failing to do enough due diligence and relying too heavily on information provided by Bankman-Fried.
Although he is concerned about FTX’s lack of formal structure and its possible connection to its sister hedge fund, Alameda Research, Huang said investors are attracted by the rapid expansion of FTX’s market share in the sector. of cryptography.
However, Huang noted that he and other Paradigm investors were concerned that Bankman-Fried may have spent more time working on Alameda than on FTX, a distraction that would have been to the detriment of Paradigm’s investment.
Additionally, Huang noted that there were concerns that Alameda may have received preferential treatment from FTX. If those concerns prove true, Huang said he fears the reputational damage it could inflict on the company.
Huang said Bankman-Fried led him to believe that Alameda was not receiving any preferential treatment from FTX. The same day, Gary Wang, co-founder of FTX testified that Alameda had access to a virtually unlimited flow of capital of the exchange.
Additionally, Huang said he had no knowledge of the alleged mixing of funds between FTX and Alameda Research.
The prosecution asked Huang whether his decision to invest in FTX would have changed if he had been told that the exchange was allegedly using customer deposits for investment purposes.
“Yes,” Huang replied. “It is generally accepted that customer deposits are sacred.”