The ongoing fraud trial of Sam Bankman-Fried in New York has produced some remarkable witness testimony—including from his ex-girlfriend Caroline Ellison—but also new documents that provide an illuminating, and sometimes cringeworthy, look at how the FTX founder manipulated venture capital investors.
One of the more remarkable exhibits to emerge at trial is an email exchange between Bankman-Fried and the crypto fund Paradigm, which invested $278 million in the failed exchange—money that the fund has since "marked to zero," according to partner Matt Huang, who testified last week.
The emails are from April 2021, several months before FTX announced a $900 million Series B funding round that eventually valued the company at $18 billion. In a series of curt messages, Bankman-Fried suggests the Paradigm might be responsible for "word on the street" rumors that his exchange should be valued at $12 billion:
Bankman-Fried's message then goes on to pressure the Paradigm team by saying he is happy not to take their money, sniffing that "it's totally fine if you want a $12b val, but we don't, and we would rather just not raise, which is totally fine with us! Also lots of others are happy with 20b."
He further adds that FTX's hoard of in-house FTT tokens—which today are nearly worthless—means the exchange should be worth even more, and concludes the email by lamenting that he's unsure "how we as a community got to where we are—we should be looking to work together in the crypto space, not fight each other."
In response, Huang and another Paradigm investor, Arjun Balaji, reassure Bankman-Fried they are not behind rumors that FTX should be valued at $12 billion, and that any difference of opinion is due to their desire to maximize success. This includes Huang telling him that the consensus is "everyone loves you, SBF + the core FTX platform."
The most ironic part of the email exchange, however, is when Balaji lays out the concerns that made Paradigm reluctant to immediately go along with Bankman-Fried's proposed $20 billion valuation:
As the screenshot above shows, Balaji is worried that FTX lacks a board or any of the oversight that is typically attached to a startup of its size, and that the entire operation is run entirely by Bankman-Fried. Using corporate jargon, he also frets over potential "value leakage" arising from the FTT token and from the unusual overlap between FTX and Bankman-Fried's hedge fund, Alameda Research.
These concerns would turn out to be entirely prescient, as, after FTX imploded, it turned out that Alameda had been raiding customer money from the exchange while Bankman-Fried was using the in-house funny-money FTT tokens to prop up the company's balance sheet.
Unfortunately for Paradigm, the firm did not heed its initial misgivings, and, in what appears to have been a case of pure venture capital FOMO, instead pressed ahead all the same with its Series B investment. It went on to invest millions more only six months later in a follow-on round.
The exchange between Paradigm and Bankman-Fried also contains an additional nugget of interesting information in the form of the subject line of the emails, which is "Re: rob sarver."
The subject appears to refer to Robert Sarver, the onetime owner of the Phoenix Suns, and coincides with a time when Bankman-Fried was preparing to make a number of large investments into sports-related endorsements—including a $135 million naming rights deal with the Miami Heat.
In the email exchange, Huang tells Bankman-Fried he spoke to Sarver who "Said all good things" and wishes the pair luck on collaborating. Bankman-Fried replies that he hopes a deal with Sarver will come to fruition.
No such deal ever materialized, however, as Sarver would soon after confront allegations of racism and misogyny and go on to sell the Suns—and the WBNA's Phoenix Mercury—shortly after FTX collapsed.
