Matthew Huang, co-founder and managing partner of crypto investment firm Paradigm, has revealed his concerns regarding Sam “SBF” Bankman-Fried’s resistance to having investors on the board of directors at FTX, a prominent cryptocurrency exchange. Huang made these statements while testifying during Bankman-Fried’s trial in a New York Federal Court.
Paradigm, along with several venture capital firms including Sequoia, Temasek, and BlackRock, faced challenges due to their involvement with the now-bankrupt crypto exchange, FTX. This led to scrutiny and public statements from these investors regarding their association with FTX.
Huang claimed that Bankman-Fried was reluctant to include investors on FTX’s board of directors, believing that their presence would not significantly benefit the exchange. FTX’s board reportedly consisted of Bankman-Fried, an unidentified lawyer from Antigua and Barbuda (where FTX was incorporated), and Jonathan Cheesman, a former FTX executive who resigned from the board in June.
Before Paradigm’s substantial $125 million investment in FTX’s Series B funding round in July 2021, Huang had multiple discussions with Bankman-Fried. Despite concerns about FTX’s informal structure and its potential ties to its sister hedge fund, Alameda Research, investors were attracted to FTX due to its rapid market share expansion in the crypto industry.
However, Huang and other Paradigm investors were worried that Bankman-Fried might be dedicating more time to Alameda Research, which could divert attention away from FTX and potentially harm Paradigm’s investment.
Furthermore, concerns existed that Alameda Research might receive preferential treatment from FTX, which could tarnish the exchange’s reputation if true. Bankman-Fried assured Huang that Alameda was not receiving any special treatment from FTX. However, FTX co-founder Gary Wang testified that Alameda had access to a significant capital flow from the exchange.
Huang also stated that he had no knowledge of any alleged mingling of funds between FTX and Alameda Research. When asked if his investment decision would have changed if he had known that FTX allegedly used customer deposits for investment purposes, Huang responded affirmatively, emphasizing the importance of treating customer deposits as sacred.