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personpersonKungyu Matthew HuangKungyu Matthew HuangCo-founder and managing partner of Paradigm, a venture capital firm focused on cryptocurrency and digital assets.← All People
Witness· Paradigm

Kungyu Matthew Huang

Co-founder and managing partner of Paradigm, a venture capital firm focused on cryptocurrency and digital assets.

AppearedFederal Criminal Trial
177 lines·6 proceedings·3 mentions

About

Called by the government on Day 3, Paradigm co-founder Kungyu Matthew Huang testified about the firm's early-2021 evaluation of FTX and its reliance on information received from the company. He described concerns about governance and the relationship between FTX and Alameda, including assurances that Alameda did not receive preferential treatment and that the companies would become less connected.

Huang said Paradigm was not told that FTX could use customer deposits for its own business purposes, that Alameda could be exempt from liquidation, maintain a negative balance, or access other customers' deposits, or that funds raised for FTX operations could go to Alameda. He testified that those matters would have affected Paradigm's investment decision. Using presentations, emails, and a financial spreadsheet, he also explained FTX's reported revenue and profits and why intentionally excluded expenses would matter, while the examination did not identify particular omitted expenses or establish why any expense was absent.

He testified that Paradigm invested about $125 million initially and about $278 million in total across FTX and FTX.US, then later marked the investment to zero.

On cross-examination, Huang acknowledged that Paradigm invested despite knowing FTX had no board and after being generally satisfied with management's responses. He distinguished that known governance concern from the matters he said were undisclosed, and he could not recall whether he reviewed an audited-financials exhibit before the investment or whether it was available at that time.

Trial Record (6)

FederalFederal Criminal TrialOct 3, 2023 – Nov 2, 2023Called by prosecution

Called by the government on Day 3, Paradigm co-founder Kungyu Matthew Huang described the firm's FTX due diligence, alleged nondisclosures concerning customer funds and Alameda, and an investment totaling about $278 million. Cross-examination tested Paradigm's sophistication, known governance concerns, and Huang's recollection of investment materials.

Day 3

DirectKungyu Matthew Huang — DirectKungyu Matthew HuangThane Rehn9highlights134lines spoken

Summary

Paradigm co-founder Kungyu Matthew Huang testified about FTX's investor representations, undisclosed risks involving Alameda and customer deposits, the financial information Paradigm reviewed, and an investment totaling about $278 million that Paradigm later marked to zero.

Highlights (9)

evidence eventGovernment Exhibit 532, FTX's business presentation, was admitted without objection and shown to the jury as Huang explained Paradigm's understanding of FTX as a rapidly growing cryptocurrency exchange and custodian of customer deposits.Open in transcript →
testimony highlightHuang testified that Paradigm was not told FTX could use customer deposits for its own purposes and that such use likely would have deterred the investment. The court rejected a defense request to strike his explanation of the business risk.Open in transcript →
Quote“If it became known that they were doing that, I think the exchange would lose credibility in brand and people wouldn't want to use it, so it would be existential to the business.”— Kungyu Matthew HuangHuang explained why undisclosed use of customer deposits would have threatened both customer trust and Paradigm's investment rationale.Open in transcript →
Quote“I recall that we were told that there was no preferential treatment for Alameda, that Alameda was one of the larger traders on the platform, but that was decreasing over time. We were shown some data about that.”— Kungyu Matthew HuangThe testimony identifies the assurance Huang recalled receiving after Paradigm raised concerns about FTX's relationship with Alameda.Open in transcript →
Show all 9 highlights
Quote“Based on a lot of our general market understanding, but also other investments in centralized crypto exchanges, it was generally understood that customer deposits are sort of sacred, that when customers deposit into the exchange, they expect the ability to get them back out.”— Kungyu Matthew HuangHuang stated the custodial expectation that informed Paradigm's assessment of undisclosed access to customer deposits.Open in transcript →
evidence eventAfter Government Exhibit 320A was admitted, Huang interpreted the spreadsheet's annualized revenue, expenses, and profit figures. In response to hypothetical questions, he said excluded expenses would make reported profits appear artificially high and could turn a positive profit into a loss.Open in transcript →
Quote“We expect the numbers being shown to us to be generally accurate. If they are missing certain expenses, we would at least want to ask if that is accidental or on purpose; and if it was on purpose, that would be a problem.”— Kungyu Matthew HuangHuang explained Paradigm's reliance on accurate financial disclosures and why intentionally omitted expenses would matter.Open in transcript →
admissionHuang testified that Paradigm initially invested about $125 million, later invested additional funds in FTX and FTX.US for a total of about $278 million, and had marked the investment's value to zero.Open in transcript →
Quote“Even more than that, because we were concerned about the potential interlink between Alameda and FTX, we had focused a lot on their relationship, and we were assured that they would become less linked over time. So it would be very concerning for them to being sending money from FTX To Alameda.”— Kungyu Matthew HuangHuang connected Paradigm's pre-investment concern about the companies' relationship to the assurances he recalled receiving.Open in transcript →
CrossKungyu Matthew Huang — CrossKungyu Matthew HuangDavid F. Lisner5highlights43lines spoken

Summary

Defense counsel tested Paradigm's diligence and known concerns about FTX's lack of a board, while the court limited investor-gullibility questioning and rejected the defense's characterization of Huang as an effective expert.

Highlights (5)

testimony highlightHuang explained that Paradigm considered company-provided documents, business metrics, and management answers during diligence and was satisfied overall before investing.Open in transcript →
Quote“On the whole, yes. That's why we subsequently ultimately invested.”— Kungyu Matthew HuangHuang acknowledged that Paradigm was generally satisfied with FTX management's responses during diligence and invested on that basis.Open in transcript →
Quote“I would say that it was a negative factor that we considered, and we actually pressed SBF on the idea of creating a board.”— Kungyu Matthew HuangHuang confirmed that Paradigm knew and considered FTX's lack of a board before investing.Open in transcript →
rulingDuring the absorbed sidebar, the defense argued that Huang had effectively supplied expert-like testimony. The court said he had not been disclosed as an expert, criticized repetitive and inappropriate questioning, and confirmed that the defense still had an opportunity to cross-examine him.Open in transcript →
Show all 5 highlights
Quote“There is no such thing as, in effect, an expert. They had an obligation to make disclosure if he was called as an expert. They didn't.”— Lewis A. KaplanThe court rejected the defense's characterization of Huang as an effective expert and identified the absence of expert disclosure.Open in transcript →

Day 18