Paradigm co-founder Sam Bankman-Fried testifies in a fraud trial over FTX's business practices

Huang's testimony supports three out of four of these elements.

Paradigm co-founder and managing partner, Matt Huang, testified on Thursday in the trial of Sam Bankman-Fried, the former crypto mogul accused of defrauding investors. Huang shed light on a number of business practices at FTX, red flags which would have affected Paradigm's decision to invest in the exchange. This included FTX's use of customer funds to prop up Bankman-Fried's hedge fund, Alameda Research. Huang also raised concerns about Alameda's links to FTX, and was worried that preferential treatment would work against FTX's reputation. Bankman-Fried had told Huang that Alameda did not get preferential treatment, but the prosecution pointed out Alameda's exemption from FTX's liquidation engine.

Huang said that Alameda's exemption was inconsistent with Bankman-Fried's claims, and could ultimately put FTX at risk of becoming insolvent. Throughout his testimony, Huang also expressed concerns over FTX's lack of governance and lack of a board, which he said could lead to unintended value leakage. Paradigm had invested $278m in FTX over two funding rounds, but according to Huang's testimony, this investment has been marked down to zero. The trial will need to establish misrepresentation, show that investors relied on Bankman-Fried's misrepresentations, and demonstrate that he intended to defraud investors. Huang's testimony supports three out of four of these elements.