The Rise and Fall of FTX: Insights from Matthew Huang’s Testimony

Understanding the Reluctance

Matthew Huang, the co-founder of Paradigm, testified in a New York Federal Court that Sam Bankman-Fried had serious reservations about letting investors join the board at FTX. Huang mentioned that Bankman-Fried believed investors wouldn’t add substantial value. This particular nugget of wisdom feels like it could use a little more seasoning, considering the subsequent events.

Boardroom Drama: Who’s in Charge?

The board of FTX was reportedly a small trio of individuals: Bankman-Fried himself, an unnamed lawyer from the Caribbean, and Jonathan Cheesman, a former executive who waved goodbye in June. One has to wonder if they ever had ‘Board of Directors: Road Trip Edition’ meetings, or was it more like ‘Debate Club: All About Crypto.’

Investment Decisions: The Perils of Trust

During the $125-million investment saga in the mega $900-million Series B funding round of July 2021, Huang admitted he might have put too much faith in what Bankman-Fried told him. It’s a classic case of, “Trust, but verify” taking a back seat to “Trust, and wait for the musical chairs to start!” Investors were dazzled by FTX’s rapid rise in market share, which often blinds a person to structural issues. Huang confessed to having concerns about Bankman-Fried’s divided attention between FTX and Alameda Research, a distraction that could derail investments faster than you can say ‘insider trading.’

Preferential Treatment Concerns

Another juicy tidbit emerged as Huang expressed worries that Alameda might have been getting the VIP treatment from FTX. Sprinkling in some conspiracy juice, he had a gut feeling that they were getting the red-carpet roll-out while other investors were left in the lurch. Bankman-Fried assured Huang that everything was on the up-and-up, but just the day before, Gary Wang, another FTX co-founder, testified that the hedge fund had near-unlimited access to capital from FTX. Cue the ominous music.

Customer Deposits: The Elephants in the Room

When asked if the knowledge of customer deposits being funneled for investments would have changed his mind about investing, Huang’s answer was a firm “Yes.” He emphasized the principle that customer deposits should be treated as sacred. I mean, who knew that the crypto world could use a lesson on basic banking ethics?