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- 1 The trial against Sam Bankman-Fried commenced this week and saw crucial testimonies.
- 2 In a recent hearing, Paradigm co-founder came up with his company’s take on SBF and FTX implosion.
- 3 Paradigm had reasons for government cooperation in the case along with sowing itself isolated from the beleaguered crypto exchange.
The trial of Sam Bankman-Fried began on Tuesday and it has seen some crucial testimonies and revelations since then. Both prosecutors and defense sides presented their arguments in front of a jury in Manhattan Federal Court. The recent development made headlines after the testimony of Paradigm co-founder and managing partner, Matt Huang. He revealed the reasons behind his company’s investment in FTX, why it is a victim, and SBF’s resistance to bringing investors to join the board.
Huang, who co-founded the tech investment firm Paradigm, and also made investments in FTX, testified on Thursday, October 5th. His testimony was from the prosecutors’ side and it was to convince the jury about the wrongdoings of Bankman-Fried.
Paradigm started considering investing in SBF’s cryptocurrency exchange in 2019. The exchange company claimed to use exchange wallets to serve as custodians. Though it seemed fine initially, it turned out that the company managed to keep a window open to use deposits for business purposes any time it wanted.
Huang confirmed that his company was not aware of this earlier. If they knew this before, they might not consider pouring money into the business, he added.
According to Huang, Paradigm was also deceived by FTX’s claims of clear operations and the safety of customers’ funds. The Bahamian crypto exchange managed to gain the trust of the investment company.
As a result, Paradigm invested a total sum of $278 Million into FTX in two funding rounds in 2021 and 2022. When asked about what he thinks of his investments’ status, Huang expects it to have dropped to “zero” by now.
FTX’s ‘Secret’ Funding Pipeline to Alameda Research
Sam Bankman-Fried created FTX in 2019 to help his trading firm Alameda Research which was witnessing friction while dealing with other exchange platforms. The intention of SBF to set up its own crypto exchange was known to all.
However, it was often clarified that the trading firm had no special treatment given by the crypto exchange.
Huang’s statement against this claim intensified the prosecutors’ intentions to prove Alameda Research had access to FTX’s customer deposits. He cited the instance of SBF ensuring him that the exchange firm had not given any preferential treatment to his trading firm. But as it turned out, it was all but true.
Paradigm’s managing partner cited an example to prove his point that Alameda Research was touted to be part of FTX’s liquidation engine. The system was a risk management strategy for the company designed to trigger sales of assets when sensed risk.
However, Alameda was an exception from the system, despite SBF assured Huang of no special treatment.
The feature of the liquidation engine of FTX was one of the reasons Paradigm considered investing in the company. But it exempted Alameda which later escalated to trigger one of the greatest fiascos the crypto industry has ever seen.
Trial against SBF started this month as prosecutors indicted him under seven counts of charges. This includes wire frauds and intentions to commit crimes, etc. and if proven guilty, it could lead the “golden boy of crypto” behind bars for over a century.
Mr. Pratik chadhokar is an Indian Forex, Cryptocurrencies and Financial Market Advisor and analyst with a background in IT and Financial market Strategist. He specialises in market strategies and technical analysis and has spent over a year as a financial markets contributor and observer. He possesses strong technical analytical skills and is well known for his entertaining and informative analysis of the Financial markets.
