New details have emerged about the links between Sam Bankman-Fried (SBF), the founder of the now-collapsed cryptocurrency exchange FTX, and some of his major backers. According to a recent report, SBF invested $20 million in a fund managed by crypto venture capital firm Paradigm in late 2021. The same fund later invested in FTX and FTX US exchanges. This revelation raises questions about potential conflicts of interest and the involvement of venture capital firms in the collapse of FTX.
Paradigm is a San Francisco-based venture capital firm that invests in a variety of sectors, including cryptocurrency, financial services, and technology. The firm claims to have made a general conflicts-of-interest disclosure to investors in its Paradigm One fund, stating that it may invest in companies run by its limited partners. However, this revelation highlights a potential issue with the fund’s investment in FTX, given SBF’s involvement.
SBF’s connections with other venture capital firms and funds also raised eyebrows. He invested $5 million in a fund launched by UVM, an arm of Singaporean bank United Overseas Bank, and Signum Capital through his trading firm Alameda. This fund later invested in FTX, according to the Financial Times. Furthermore, SBF invested hundreds of millions of dollars into venture capital funds run by firms such as Sequoia Capital, which also backed FTX.
SBF was arrested in The Bahamas in December 2021 and was subsequently extradited to the US where he was released on a $250 million bond. He faces criminal charges, including wire fraud and conspiracy, by the Southern District of New York, and civil charges by the SEC for “orchestrating a scheme to defraud equity investors in FTX.”
The collapse of FTX has had a significant impact on the crypto venture capital community. Matt Huang, co-founder of Paradigm, took to Twitter to express his shock at the revelations and stated that the firm’s investments in FTX constituted a small part of their total assets, which have since been written down to zero. The incident highlights the need for increased transparency and accountability in the crypto industry, particularly with regards to potential conflicts of interest involving venture capital firms and their investments.
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