Sam Bankman-Fried invested $20mn in a large venture capital fund that then took a stake in his FTX cryptocurrency exchange group, an arrangement that highlights close links between the fallen billionaire and some of his backers.
In late 2021 Bankman-Fried invested in a fund managed by Paradigm, a big backer of crypto start-ups. The same $2.5bn “Paradigm One” fund later invested in his FTX and FTX US exchanges, according to disclosures made this week in bankruptcy court.
Paradigm One was at the time the biggest crypto-focused venture capital vehicle. As a result of the transactions, Bankman-Fried invested in and received financing from that single pot of money.
“That’s just weird,” said Charles Whitehead, a professor at Cornell Law School. He said that though there was “nothing inherently wrong” with such arrangements, “it raises your eyebrows”.
Bankman-Fried has pleaded not guilty to US charges of fraud and money-laundering after the collapse of FTX in November. He previously raised $1.8bn from outside investors for his companies.
Prosecutors and regulators allege that he defrauded those investors and funnelled money from FTX customers to his Alameda Research hedge fund, which spent heavily on risky investments in start-ups and crypto tokens.
Paradigm, launched in 2018 by former Sequoia Capital partner Matt Huang and Coinbase co-founder Fred Ehrsam, said Bankman-Fried was treated the same as its other investors in its fund.
San Francisco-based Paradigm also made a general conflicts-of-interest disclosure to investors in Paradigm One that said the fund may invest in companies run by its limited partners, a spokesperson said.
Bankman-Fried did not immediately respond to requests for comment.
Through Alameda, Bankman-Fried also invested $5mn in a fund launched by UVM, an arm of Singaporean bank United Overseas Bank, and Signum Capital. The fund invested in FTX, according to the new court records. 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 his FTX businesses.
Bankman-Fried invested tens of millions of dollars into a wide array of funds managed by venture capital firms that were also backers of FTX, including Sequoia Capital, the Financial Times has reported. Alameda invested $200mn in Sequoia-managed funds, but in different vehicles than those that backed FTX, a person close to the firm previously said.
Paradigm was a central investor in FTX. The firm helped FTX’s internal ventures team run its July 2021 Series B funding round, according to a press release for the fundraising. At the time, Huang said Bankman-Fried was “one of those special founders whose vision is both stunningly ambitious and uniquely adapted to the future of crypto”.
When Paradigm One launched a few months later, in November 2021, Alameda was among its investors with a $20mn stake. Alameda later expanded its stake in Paradigm One by $5mn 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, which valued the two companies at a combined $40bn, according to a list of FTX’s shareholders filed in US bankruptcy court.
Paradigm wrote down its total $278mn investment in FTX to zero in November, after the companies filed for bankruptcy in the US. Huang tweeted that month that he felt “deep regret for having invested in a founder and company who ultimately did not align with crypto’s values”.