Three Arrows Capital (3AC) co-founder Kyle Davies has found himself in hot water as the liquidators of the now-bankrupt hedge fund have filed a motion to hold him in contempt of court. The filing claims that Davies has ignored subpoenas connected to the ongoing bankruptcy proceedings, and is purposely delaying the fund’s asset recovery. However, the motion doesn’t affect fellow co-founder Su Zhu due to his Singaporean citizenship, keeping him outside the jurisdiction of United States courts.
As the drama unfolds, the civil sanctions against Davies for his alleged contempt include a daily $10,000 fine until the subpoena is complied with, as well as an award of attorneys’ fees. This recent development is bound to raise eyebrows and create a sense of uneasiness among the existing crypto hedge fund networks.
Questions arise about the seriousness of the situation, particularly in regard to recovery efforts. Former crypto hedge fund 3AC reportedly owes creditors a total of $3.5 billion, with its estimated assets under management at its peak reaching $10 billion. An auction for parts of 3AC’s nonfungible token collection brought in $2.5 million last month, highlighting the conundrum of how best to address the remaining debt.
The founders’ whereabouts and legal jurisdictions have also contributed to challenges in recovering the assets. Liquidators have had to obtain permission from Singaporean and U.S. authorities just to subpoena Davies and Zhu through digital channels. This cumbersome process intensifies the debate around the transparency and compliance of other crypto hedge funds in similar situations.
Interestingly, instead of complying with subpoenas and information requests, the motion claims that “the founders have ignored their obligations, hidden their whereabouts, and instead spent their time creating, amongst other things, a new venture to trade claims in cryptocurrency bankruptcy cases.” The actions taken by the 3AC founders seem to have only muddied the waters even more and led to further skepticism surrounding the operation and its possible future endeavors.
As all eyes are on the upcoming court hearing, the result of this case has the potential to set a precedent for future rulings in the crypto hedge fund space. It also serves as a reminder of the need for increased clarity and regulatory adherence within this burgeoning industry.
Source: Cointelegraph
