Three Arrows Capital (3AC) is one of the big crypto insolvencies. A court in the British Virgin Islands (BVI) has issued an order to freeze assets valued at over $1 billion belonging to the founders of the now-defunct crypto hedge fund Three Arrows Capital (3AC), Kyle Davies and Su Zhu. The order also extends to Kelly Chen, the wife of co-founder Kyle Davies, prohibiting the transfer or sale of the founders’ digital assets.
The Three Arrows Capital Case
3AC, a Singapore-based crypto hedge fund, has faced accusations of operating as a Ponzi scheme. The hedge fund came under scrutiny after defaulting on a multimillion-dollar loan from the crypto bank Voyager, leading to its liquidation managed by the New York-based consultancy firm Teneo.
In June 2022, 3AC failed to meet its margin calls and failed to make the required payments on a Bitcoin and USD Coin to crypto broker Voyager for a loan worth more than $665 million. On the same day, a BVI court ordered its liquidation. In June 2023, the liquidators said they were seeking to recover $1.3 billion from Davies and Zhu.
As reported by Teneo, the new BVI court decision prevents co-founders Su Zhu and Kyle Davies, along with Davies’ wife, Kelly Chen, from moving or liquidating their digital assets. The liquidator values the frozen assets at approximately $1.14 billion, while the hedge fund’s creditors are owed more than $3 billion.
Recently, Teneo said they are estimating a 45.74% recovery rate for creditors. The estimated value of the company’s assets stood at $1.16 billion as of Dec. 18, while claims to the value of $2.7 billion are expected to be recognized for distribution.
Legal Challenges and Allegations
Following the collapse of 3AC, Zhu and Davies have faced allegations of obstructing the liquidation process. They initially sought Chapter 15 bankruptcy protection in July 2022, allegedly to prevent the seizure of the firm’s assets in the United States. They have also been accused of evading subpoenas and legal compliance, with the liquidator at one point requesting the court to impose a daily fine of $10,000 on Davies for non-compliance.
Read more reports on Three Arrows Capital (3AC) here.
Arrest and Legal Proceedings
In September 2023, Su Zhu was arrested at Changi Airport in Singapore while attempting to leave the country. He was imprisoned for four months for failing to cooperate with the company’s liquidators. Despite Zhu’s imprisonment, the case remains a civil matter in Singapore, with no criminal charges filed. However, the Monetary Authority of Singapore (MAS) has banned Zhu and Davies from regulated financial activities for nine years, citing inadequate risk management and the provision of false information.
Impact on the Crypto Industry
The liquidation and subsequent legal proceedings against 3AC have had a ripple effect across the cryptocurrency industry. The firm’s downfall, shortly after the implosion of the Terra-Luna ecosystem, triggered a wave of bankruptcies and highlighted the lack of regulatory oversight in the crypto market.
