Investor Alleges FTX Founder Resisted Board Inclusion, Raises Questions on Operational Transparency
Summary:
Matthew Huang, co-founder of Paradigm, claimed that Sam Bankman-Fried was hostile to investor participation on the board of FTX. Having invested $125 Million in FTX's Series B funding round, Huang admitted to lacking due diligence, relying heavily on Bankman-Fried's information. Despite concerns about FTX's structure and links to Alameda Research, investors were attracted by FTX's growth in the crypto market. Huang and other investors feared Bankman-Fried may have prioritized Alameda over FTX and questioned if Alameda received preferential treatment from FTX. Huang was also unaware of alleged fund merging between FTX and Alameda Research.
Matthew Huang, the co-founder and managing partner of crypto investment firm Paradigm, stated that Sam Bankman-Fried was quite unwelcoming towards the idea of allowing investors to become part of the board at FTX. The unexpected failure of FTX hit several investors hard, with Paradigm joining the roster of investment firms like Sequoia, Temasek, and BlackRock that backed the meteoric rise and eventual bankruptcy of the crypto exchange.
During Bankman-Fried's third-day trial in a New York federal court, Huang alleged that Bankman-Fried was under the impression that letting investors join FTX's board wouldn't yield any significant benefits. Prior to Paradigm’s sizable $125 million investment as part of FTX’s colossal $900 million Series B funding round in July 2021, Huang confessed to having multiple conversations with Bankman-Fried. He also confessed to insufficient due diligence and an over-reliance on information offered by Bankman-Fried.
Despite expressing concerns about FTX's lack of a formal setup and potential complications with its sister hedge fund Alameda Research, Huang specified that the investors were enticed by the rapid growth of FTX in the crypto market. Nevertheless, Huang and his colleagues at Paradigm were apprehensive about Bankman-Fried possibly dedicating more time to Alameda than FTX, which could potentially undermine Paradigm’s investment. Moreover, doubts loomed about Alameda potentially receiving special treatment from FTX, which, if true, Huang feared, could tarnish the company's reputation.
Huang claimed Bankman-Fried had assured him that Alameda was not receiving any form of preferential treatment from FTX. Yet, on the same day, FTX co-founder Gary Wang testified that Alameda was granted almost infinite access to capital from the exchange. Furthermore, Huang stated that he was unaware of the alleged merging of funds between FTX and Alameda Research. When asked by the prosecution if his decision to invest in FTX might have been different if he knew that customer deposits were allegedly used for investment purposes, Huang responded affirmatively, remarking that customer deposits are conventionally considered sacrosanct.
Published At
10/6/2023 1:47:13 AM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.