Sam Bankman-Fried invested $20 million in a major venture capital fund which then took a stake in his FTX cryptocurrency exchange group, an arrangement that highlights close ties between the fallen billionaire and some of its donors.
At the end of 2021, Bankman-Fried invested in a fund managed by Paradigm, a big funder of crypto start-ups. The same $2.5 billion “Paradigm One” fund later invested in its FTX and FTX US exchanges, according to disclosures made this week in bankruptcy court.
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 pot of money.
“It’s just weird,” said Charles Whitehead, a professor at Cornell Law School. He said that while there is “nothing inherently wrong” with such arrangements, “it does raise your eyebrows.”
Bankman Fried pleaded not guilty to US charges of fraud and money laundering after FTX collapsed in November. He previously raised $1.8 billion from outside investors for his ventures.
Prosecutors and regulators allege he defrauded those investors and funneled money from FTX clients to his hedge fund Alameda Research, which spent a lot of money 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 his other investors in his fund.
San Francisco-based Paradigm also issued a general conflict of interest statement to Paradigm One investors, indicating that the fund may invest in companies managed by its limited partners, a spokesperson said.
Bankman-Fried did not immediately respond to requests for comment.
Via Alameda, Bankman-Fried also invested $5 million in a fund launched by UVM, a branch of Singaporean bank United Overseas Bank, and Signum Capital. The fund invested in FTX, according to new court filings. Signum and UOB did not immediately respond to requests for comment.
UVM Signum and Paradigm are the earliest known examples of Bankman-Fried’s investment in the specific fund that supported its FTX business.
Bankman-Fried invested tens of millions of dollars in a wide range of funds managed by venture capitalists who also backed FTX, including Sequoia Capital, the Financial Times reported. Alameda invested $200 million in Sequoia-managed funds, but in different vehicles than those that backed FTX, a person familiar with the company previously said.
Paradigm was a core investor in FTX. The company helped FTX’s in-house corporate team organize its July 2021 Series B funding round, according to a press release for the fundraiser. At the time, Huang said Bankman-Fried was “one of those special founders whose vision is both incredibly ambitious and uniquely suited 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 then 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, which valued the two companies at $40 billion combined, according to a list of FTX shareholders filed in US bankruptcy court.
Paradigm reduced its total investment of $278 million in FTX to zero in November after the companies filed for bankruptcy in the United States. Huang tweeted that month that he felt “deep regret investing in a founder and company that ultimately did not align with crypto values.”