Court Endorses Three Arrows Capital’s $1.53 Billion Claim Against FTX

ftx_3ac_news

TLDR

FTX Objections
3AC Collapse

The US Bankruptcy Court allowed Three Arrows Capital’s liquidators to increase their FTX claim from $120 million to $1.53 billion.

• The expanded claim includes allegations of breach of contract, fiduciary duty, and unjust enrichment.
• Judge Dorsey ruled in favor of 3AC, attributing delays to FTX’s failure to provide necessary documents promptly.
• 3AC, once a major crypto hedge fund with over $3 billion in assets, collapsed in June 2022 after the crypto market downturn.
• This ruling adds to the ongoing saga involving Sam Bankman-Fried, who is currently seeking a pardon from President Trump.

The US Bankruptcy Court Grants a Game-Changing Motion

The US Bankruptcy Court for the District of Delaware has granted a pivotal motion in the crypto world. Three Arrows Capital (3AC) liquidators can now expand their claim against FTX from $120 million to $1.53 billion.

This ruling marks a key development in the ongoing bankruptcy proceedings. Judge John T. Dorsey approved the motion filed by 3AC’s joint liquidators, Russell Crumpler and Christopher Farmer.

The liquidators originally filed their proof of claim in June 2023, seeking to recover funds related to a $120 million loan allegedly owed by 3AC to FTX.

Discovery of a Larger Financial Entanglement

Further investigation revealed much more extensive dealings between the companies. Just two weeks before 3AC entered liquidation, approximately $1.53 billion of 3AC’s assets on the FTX platform were liquidated to satisfy $1.3 billion in liabilities to FTX. This discovery led the liquidators to expand their claim against the bankrupt crypto exchange.

The amended filing includes several new allegations against FTX, such as breach of contract, breach of fiduciary duty, and unjust enrichment.

The court documents highlight the numerous challenges faced by the liquidators, including a lack of proper records from 3AC and minimal cooperation from its founders, Kyle Davies and Su Zhu. Additionally, many crucial documents only became available in late 2023 and early 2024, after FTX declared bankruptcy in November 2022.

FTX’s Objections and the Court’s Decision

FTX objected to the motion to amend the claim, arguing that it was filed too late and expanded the scope beyond what was permissible in the bankruptcy process. The exchange asserted that the original proof of claim did not provide sufficient notice regarding the nature or amount of the new claims. However, Judge Dorsey dismissed these objections.

The court sided with 3AC’s liquidators and approved the expanded claim. Judge Dorsey determined that much of the delay in filing was due to FTX not providing necessary documents promptly.

“Having considered all the evidence presented, I find that the balance of the equities is in favor of allowing the Amended POC,” wrote Judge Dorsey in his decision.

He further noted that “the delay in filing the Amended Proof of Claim was, in large part, caused by the Debtors themselves.”

Three Arrows Capital’s Rise and Fall

Three Arrows Capital was once one of the biggest crypto hedge funds, managing over $3 billion in assets before its collapse in June 2022. The firm’s downfall was triggered by a sharp downturn in the crypto market.

3AC had placed highly leveraged bets on digital assets, including the TerraUSD stablecoin, which crashed in May 2022.

The collapse of 3AC sent shockwaves through the crypto industry, triggering a wave of liquidations affecting lenders such as Voyager Digital and BlockFi.

The FTX Bankruptcy and Bankman-Fried’s Legal Struggles

According to court filings, 3AC held $1.53 billion in assets on FTX as of June 12, 2022. Over the next two days, those assets were liquidated to cover a $1.3 billion debt to FTX.

This latest ruling adds another layer to the complex FTX bankruptcy saga. The exchange collapsed amid allegations of fraud and mismanagement under former CEO Sam Bankman-Fried.

Meanwhile, Bankman-Fried is pursuing a different path, reportedly seeking a pardon from President Donald Trump.

To improve his chances, Bankman-Fried has aligned himself with right-wing figures. He recently appeared on Tucker Carlson’s show and consulted with a lawyer linked to Trump.

Despite Trump’s history of granting pardons, many remain skeptical. Bankman-Fried’s lack of support within the crypto community could hinder his chances of receiving presidential clemency.

Legal Actions Against 3AC’s Founders

The ruling on 3AC’s expanded claim follows another key development. In December 2023, 3AC’s liquidators secured a worldwide freeze on $1.4 billion in assets tied to the fund’s co-founders.

This order, issued by a British Virgin Islands court, blocks Zhu, Davies, and Davies’ wife, Kelly Chen, from accessing funds while claims against them are pursued.

The liquidators argue that the founders should be held accountable for decisions that exacerbated 3AC’s financial troubles in the weeks before its collapse.

Su Zhu, one of 3AC’s co-founders, was arrested in Singapore in September 2023 at Changi Airport while attempting to leave the country following a committal order by Singapore courts.