Matt Huang said he was led to believe that Alameda Research was not being provided any special treatment by FTX.
Sam “SBF” Bankman-Fried was “very resistant” to having investors join the board of directors at FTX, claims 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, with all facing scrutiny — and subsequently issuing statements — on their investment in FTX.
Testifying on the third day of Bankman-Fried’s trial in a New York Federal Court, Huang claimed Bankman-Fried believed having investors on FTX’s board of directors wouldn’t bring much to the table.
FTX’s board reportedly consisted 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 stepped down from the board in June.
Huang engaged in a handful of conversations with Bankman-Fried ahead of Paradigm’s $125-million investment in the exchange’s staggering $900-million Series B funding round it closed in July 2021.
Huang admitted to not conducting enough due diligence and that he relied too heavily on information supplied by Bankman-Fried.
Despite being concerned by the lack of formal structure at FTX and its potential entanglement with its sister hedge fund, Alameda Research, Huang said investors were lured in by the rapid expansion of FTX’s market share in the crypto industry.
Still, Huang noted that he and other investors at Paradigm were concerned that Bankman-Fried may have been spending more time working on Alameda instead of FTX, a distraction that would have been at the expense of Paradigm’s investment.
Additionally, Huang noted that there were concerns that Alameda may have been receiving preferential treatment from FTX. If these concerns turned out to be true, Huang said he was fearful of the reputation damage it may inflict on the company.
Huang said he was led to believe by Bankman-Fried that Alameda was not being provided with any privileged treatment by FTX. The same day, FTX co-founder Gary Wang testified that Alameda was given access to a near-unlimited flow of capital from the exchange.
Additionally, Huang said he had no knowledge of the alleged commingling of funds between FTX and Alameda Research.
The prosecution asked Huang if his decision to invest in FTX would’ve changed if he’d been told the exchange was allegedly using customer deposits for investment purposes.
“Yes,” Huang replied. “It’s generally understood that customer deposits are sacred.”