Crypto investor's co-founder, Matt Huang, will testify in Sam Bankman-Fried trial

74
3
Crypto investor's co-founder, Matt Huang, will testify in Sam Bankman-Fried trial

Matt Huang, co-founder and managing partner of crypto investment firm Paradigm, will be available to the defense at Sam Bankman-Fried's trial, which could help the prosecution convince jurors that the former crypto mogul defrauded investors.

On Thursday, China said that he and his firm were in the dark about a range of business practices at FTX, red flags that would have affected his decision to invest in the company. FTX's use of customer funds to prop up Bankman-Fried's hedge fund Alameda Research.

He likely has his own motives for testifying against Bankman-Fried and distancing his firm from FTX. Paradigm is part of a class-action lawsuit that accuses it, together with Sequoia Capital and Thoma Bravo, of promoting FTX to the detriment of its users.

Paradigm was also duped, according to Huang's testimony.

This establishes damage has been done in the form of financial losses, which the prosecution will have to establish in order to prove fraud.

The government will also have to establish misrepresentation, showing that the defendant made false statements or concealed material information to convince investors to fork over money. Prosecutors also must prove that the investors relied on Bankman-Fried's misrepresentations. Finally, they'll need to show that Bankman-Fried intended to defraud investors, which could be more difficult.

At least one of those elements supports the creation of three out of four, according to Huang's testimony.

In 2019, Paradigm began considering investment in FTX, Huang said. During that time, Huang testified that FTX exchange wallets served as a custodian for customer deposits and would always be available if customers wished to withdraw. He was not told by the company that FTX could take those deposits out and use them for their own business purposes.

so it would be existential to the business, he said.

Huang was not only uninformed about FTX's habit of using customer deposits for its own purposes, but he also testified that he didn't know Alameda was able to access those deposits and wouldn't have invested in FTX if he had.

He was afraid that Alameda, one of the largest traders on the platform, would get preferential treatment, which would also be damaging to FTX's reputation.

Bankman-Fried told The New York Times that he didn't have preferential treatment on the platform. The prosecution also pointed out that Alameda was exempt from FTX's liquidation engine, a risk management strategy that is designed to automatically trigger the sale of assets if certain risk parameters are exceeded.

In the interview, Huang said that FTX's liquidation engine was a big part of why Paradigm was attracted to the company. He also said that Alameda's exemption is inconsistent with Bankman-Fried's statement that it didn't get preferential treatment.

Rehn also sought evidence that Bankman-Fried made false statements to lull Paradigm into investing. He pulled up an excel spreadsheet that had been attached to an email sent to Huang showing FTX's financial stats as of April 2021. The balance sheet showed FTX's annualized anticipated revenue, forecasting a net profit of $85 million for Q1 2021. Rehn said that FTX had moved certain expenses off those financial statements in order to artificially inflate the reported net profits.

Throughout his testimony, Huang said that he had also expressed concerns with Bankman-Fried over FTX's lack of a board and lack of governance, which he said could lead to unintended value leakage. While Paradigm did not ultimately stop Paradigm from investing in FTX, Huang testified that it was a fact that did not stop Paradigm from investing in FTX.