- A testimony from Paradigm co-founder Matt Huang has shed light on how Sam Bankman-Fried lied to investors about FTX’s ties to Alameda.
- Sordid details from former insiders back Huang’s testimony.
- The testimonies paint a picture of a man who intentionally lied about his business to con investors out of millions.
The trial of former crypto poster boy Sam Bankman-Fried (SBF) entered its third day on Thursday, October 5. As the case heats up, the prosecution has turned to testimonies from an extensive witness list, comprising former close buddies of the FTX founder and the firm’s investors, to convince the jury that Bankman-Fried defrauded investors and customers of billions.
Among those who have testified against the former FTX CEO is Matt Huang, co-founder of Paradigm. This crypto-focused investment firm bet $278 million on the collapsed crypto exchange between 2021 and 2022. Today, Paradigm has marked down these investments to zero.
While the defense attempts to portray Bankman-Fried as an inexperienced and naive sailor at the helm of a multi-billion dollar ship that just got caught in a storm, the testimony from Huang paints a picture of a man who built an empire by misrepresenting his business to con investors out of millions.
Huang: SBF Lied About FTX-Alameda Ties
On Thursday, Paradigm’s Huang told the court that then-FTX CEO Bankman-Fried had dismissed the investment firm’s concerns about the exchange’s ties to its sister trading firm Alameda.
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Specifically, Huang noted that during FTX’s series B funding in 2021, Paradigm had expressed concern over whether the exchange offered preferential treatment to Alameda.
"We expressed concerns about value leakage to Alameda. We were concerned about front running and access to the order book," the Paradigm co-founder explained.
But Bankman-Fried assured Huang and Paradigm that FTX did not give any such perks to Alameda. Based on these assurances, Paradigm would join the likes of Sequoia Capital, SoftBank, and Coinbase Ventures to raise $900 million for FTX at an $18 billion valuation.
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However, revelations following FTX’s collapse contradict Bankman-Fried’s statements to Huang. They indicate that FTX offered significant perks to Alameda, and these clandestine operations ultimately led to the exchange’s collapse, which cost Paradigm and other investors millions of dollars. These revelations have now been corroborated by sworn testimony from FTX insiders.
Former FTX Insiders Shed Light on FTX Alameda Ties
In testimonies on Thursday, FTX developer Adam Yedidia detailed how an Alameda Research bank account held FTX customer fiat deposits. Yedidia claims credit for developing “fiat@ftx.com,” an automated system that credited FTX customer accounts to reflect deposits in the Alameda-controlled bank account. During the testimony, the former FTX insider asserted that he believed Alameda “was just holding the money.”
But Alameda’s debt to FTX would eventually rise to $8 billion. Despite this, Yedidia asserted that he had remained faithful to the firm till he discovered that Alameda had used these customer deposits to pay off loans.
"It seemed like a flagrantly wrong thing," Yedidia reportedly noted.
To further detail FTX’s unsavory relationship with Alameda, prosecutors called on FTX and Alameda co-founder Gary Wang. Wang detailed that Alameda had been exempted from FTX’s liquidation engine and allowed unfettered withdrawals from the platform, sometimes funded by customer deposits when the trading firm had a negative balance.
Other perks afforded to Alameda by FTX, according to Wang, included a $65 billion line of credit as a market maker and faster access to the platform than other market makers. Bankman-Fried did not disclose any of these entanglements to investors, and as highlighted by Huang’s testimony, in the case of Paradigm, they were vehemently denied.
Wang’s testimony is expected to continue on Friday, October 6. The former FTX executive asserts that he and other executives at the exchange, including Bankman-Fried, had committed financial crimes. Wang and former Alameda CEO Caroline Ellison took a plea deal with the Department of Justice (DOJ) in December 2022, a month after FTX’s collapse.
On the Flipside
- Paradigm’s Huang conceded that the firm relied too heavily on assurances from Bankman-Fried and failed to do their due diligence.
- While big institutions like Paradigm are likely to bounce back from failed FTX investments, the same is likely not true for many of the exchange’s customers.
Why This Matters
Paradigm’s Matt Huang’s testimony suggests that Bankman-Fried raised funds by misrepresenting FTX’s relationship with Alameda to investors. The move is indicative of investor fraud, and Huang’s testimony, backed by those from former FTX insiders, is likely to go a long way in tipping the scales in the potentially six-week-long trial.
Read this to learn more about SBF’s stunning fall:
Sam Bankman-Fried: Crypto’s Fallen Hero?
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