3AC Liquidators Pursue $1.3 Billion from Founders
Liquidators appointed for Three Arrows Capital (3AC), the failed Singaporean cryptocurrency hedge fund, are seeking to recover $1.3 billion from the fund’s co-founders.
That’s according to an unidentified source cited by Bloomberg in a report published on Tuesday. The requested amount represents losses incurred by the founders during the months leading up to the firm’s collapse, according to a source familiar with the liquidators’ claims.
Liability allegations
During a meeting with the hedge fund’s creditors on Tuesday, the liquidators discussed the allegations against Three Arrows co-founders Su Zhu and Kyle Davies. The co-founders are accused of causing the hedge fund to accumulate significant leverage between May and June 2022, despite already suffering substantial losses from ill-fated Luna tokens and other investments.
The liquidators argue that the firm was insolvent at that time. Consequently, they have taken legal action against Zhu and Davies in a British Virgin Islands court to recover the losses on behalf of the fund’s creditors.
Lawyers representing Zhu and Davies have not yet responded to requests for comment. However, in a Twitter post last June, Zhu mentioned that their attempts to cooperate with the liquidators were met with resistance.
Crypto failure catalyst
The failure of Three Arrows Capital coincided with a downturn in the digital currency market, impacting platforms that had exposure to the hedge fund, including crypto lenders BlockFi and Voyager Digital. These platforms subsequently filed for bankruptcy in the weeks following the liquidation of the hedge fund.
The liquidators’ allegations against the co-founders represent an escalation of actions taken against Zhu and Davies, whom they have accused of non-cooperation during the investigation. The liquidators, who are partners at the consulting and advisory firm Teneo, were appointed by a British Virgin Islands court last year to recover funds for Three Arrows Capital’s creditors, who are collectively owed approximately $3.3 billion.
Earlier this month, the liquidators urged a New York bankruptcy judge to impose a daily fine of $10,000 on Davies. They argue that this substantial fine is warranted because he has failed to respond to a subpoena requesting business records and other relevant information.
While the liquidators do not currently know the whereabouts of Davies or Zhu, court documents from earlier this month referenced a New York Times article reporting that Davies had traveled to Bali after the collapse of Three Arrows Capital.
Restraining order
In May Zhu had secured a restraining order against BitMEX Co-Founder Arthur Hayes in a Singaporean court. Hayes believes that he is owed $6 million by the 3AC co-founders. Despite significant adverse publicity within the crypto space, the 3AC co-founders have proceeded to do business within the industry.
They’ve established a crypto claims trading platform, OPNX, and alongside that Dubai-based business, they’ve also established a new venture capital fund, 3AC Ventures.
The Dubai regulator, the Virtual Assets Regulatory Authority (VARA), has reprimanded OPNX and the business's founders for operating an unregistered digital assets business within the territory.
