The FTX boss invested in the Paradigm fund, which backed his crypto exchange

Sam Bankman-Fried invested $20 million in a large venture capital fund, which then took a stake in his FTX cryptocurrency exchange group, an arrangement that highlights the close ties between the fallen billionaire and some of his supporters.

In late 2021, Bankman-Fried invested in a fund managed by Paradigm, a big supporter of crypto startups. The same $2.5 billion “Paradigm One” fund later invested in its exchanges FTX and FTX US, according to a bankruptcy court announcement this week.

Paradigm One was the largest crypto-focused venture capital vehicle at the time. As a result of the transactions, Bankman-Fried invested in and received funding from this single pool of funds.

“It’s just weird,” said Charles Whitehead, a professor at Cornell Law School. He said that while there was “nothing inherently wrong” with such arrangements, “it raises eyebrows.”

Bankman-Fried has pleaded not guilty to US fraud and money laundering allegations following FTX’s collapse in November. He previously raised $1.8 billion from outside investors for his companies.

Prosecutors and regulators claim he scammed these investors and funneled money from FTX clients to his hedge fund Alameda Research, which spent heavily on risky investments in startups and crypto tokens.

Paradigm, which was launched in 2018 by former Sequoia Capital partner Matt Huang and Coinbase co-founder Fred Ehrsam, said Bankman-Fried is treated the same in its fund as its other investors.

San Francisco-based Paradigm also made a general conflict of interest disclosure to investors in Paradigm One, saying the fund may invest in companies run by its limited partners, a spokesman said.

Bankman-Fried did not immediately respond to requests for comment.

Through Alameda, Bankman-Fried also invested $5 million in a fund raised by UVM, a subsidiary of Singapore bank United Overseas Bank, and Signum Capital. The fund invested in FTX, according to the new court filings. Signum and UOB did not immediately respond to requests for comment.

UVM Signum and Paradigm are the first known examples of Bankman-Fried investing in the specific fund that backed its FTX trades.

Bankman-Fried has invested tens of millions of dollars in a wide range of funds managed by venture capital firms that have also been FTX backers, including Sequoia Capital, the Financial Times reported. Alameda invested $200 million in funds managed by Sequoia, but in different vehicles than those backing FTX, a person close to the firm said earlier.

Paradigm has been a key investor in FTX. According to a press release for the fundraising, the company assisted FTX’s internal ventures team in conducting its Series B funding round in July 2021. At the time, Huang said Bankman-Fried was “one of those special founders whose vision is both amazingly ambitious and unique adapted to the future of crypto”.

When Paradigm One launched a few months later, in November 2021, Alameda was among its investors with a $20 million stake. Alameda later increased its stake in Paradigm One by $5 million through an apparent purchase from another investor in the fund.

The Paradigm One fund then joined a January 2022 funding round for FTX and its US arm that valued the two companies at a combined $40 billion, according to a list of FTX shareholders filed with the US bankruptcy court.

Paradigm wrote off its total $278 million investment in FTX in November after the companies filed for bankruptcy in the US. Huang wrote on Twitter this month that he “feels deep regret for investing in a founder and company that ultimately did not align with crypto’s values.”

https://www.ft.com/content/756f4268-5d9b-42e5-8fdd-d007e60b8d00 The FTX boss invested in the Paradigm fund, which backed his crypto exchange

Adam Bradshaw

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