FTX's sudden collapse caused losses to several investors in the now-bankrupt crypto exchange, where venture capital firms such as Sequoia, Temasek and BlackRock, including Paradigm, had invested.
Matthew Huang, co-founder and managing partner of Paradigm, claimed at the hearing in New York Federal Court that Bankman-Fried believed that having investors on the FTX board would not contribute much.
Huang had several meetings with Bankman-Fried before investing $125 million in FTX's $900 million Series B financing round, which closed in July 2021.
Huang acknowledged that he did not conduct sufficient preliminary investigation and relied too heavily on information provided by Bankman-Fried.
Although he was concerned about FTX's lack of formal structure and potential intertwining with sister hedge fund Alameda Research, Huang said investors were attracted by FTX's rapid expansion of market share in the crypto industry.
Still, Huang said he was concerned that Bankman-Fried might have spent more time working at Alameda instead of FTX, which could have been a distraction to the detriment of Paradigm's investment.
Additionally, Huang noted that there are concerns that Alameda may have received preferential treatment from FTX. Huang feared the damage it could do to the company's reputation if these concerns turned out to be true.
Huang said Bankman-Fried believes Alameda did not receive any preferential treatment from FTX. That same day, FTX co-founder Gary Wang stated that Alameda had access to virtually unlimited capital flows from the exchange.
Additionally, Huang said he was not aware of the alleged mixing of funds between FTX and Alameda Research.
The prosecution asked whether Huang would have changed his decision to invest in FTX if he had been informed that FTX was accused of using customer deposits for investment purposes.
"Yes," Huang said. “It is generally accepted that customer deposits are sacred.”
Matthew Huang, co-founder and managing partner of Paradigm, claimed at the hearing in New York Federal Court that Bankman-Fried believed that having investors on the FTX board would not contribute much.
Huang had several meetings with Bankman-Fried before investing $125 million in FTX's $900 million Series B financing round, which closed in July 2021.
Huang acknowledged that he did not conduct sufficient preliminary investigation and relied too heavily on information provided by Bankman-Fried.
Although he was concerned about FTX's lack of formal structure and potential intertwining with sister hedge fund Alameda Research, Huang said investors were attracted by FTX's rapid expansion of market share in the crypto industry.
Still, Huang said he was concerned that Bankman-Fried might have spent more time working at Alameda instead of FTX, which could have been a distraction to the detriment of Paradigm's investment.
Additionally, Huang noted that there are concerns that Alameda may have received preferential treatment from FTX. Huang feared the damage it could do to the company's reputation if these concerns turned out to be true.
Huang said Bankman-Fried believes Alameda did not receive any preferential treatment from FTX. That same day, FTX co-founder Gary Wang stated that Alameda had access to virtually unlimited capital flows from the exchange.
Additionally, Huang said he was not aware of the alleged mixing of funds between FTX and Alameda Research.
The prosecution asked whether Huang would have changed his decision to invest in FTX if he had been informed that FTX was accused of using customer deposits for investment purposes.
"Yes," Huang said. “It is generally accepted that customer deposits are sacred.”