In the aftermath of the notorious bankruptcy of Three Arrows Capital (3AC), liquidators have now taken action to recover a staggering $1.3 billion from the crypto hedge fund’s founders. A recent report from Bloomberg reveals that the founders, Su Zhu and Kyle Davies, allegedly took on additional debt months prior to the collapse, even as the hedge fund sailed closer to insolvency.
Partners at consulting firm Teneo, the liquidators in this case, have communicated these allegations to the creditors, as per a person with knowledge of the matter. The events kicked off when 3AC suffered significant losses due to the Terra ecosystem’s collapse that began in May 2022. Despite these losses, Zhu and Davies purportedly increased their leverage. Now, the liquidators have turned to a British Virgin Islands court in their quest to recover the funds.
The collapse of 3AC was a definitive moment in the crypto winter of last year, serving as a catalyst for the subsequent failures of other related firms exposed to the hedge fund. Prominent names such as Voyager Digital, Celsius Network, and Genesis Asia Pacific were among those forced to subsequently file for bankruptcy protection. It is worth noting that both CoinDesk and Genesis are part of the Digital Currency Group.
On one hand, the liquidators’ pursuit of $1.3 billion highlights the magnitude of the alleged missteps by 3AC’s founders. If proven accurate, these allegations could serve as cautionary tales for those entering the complex world of crypto markets, particularly when navigating risky ventures and expansive growth.
On the other hand, the unfolding of this legal showdown reminds us of the larger conversation surrounding the need for increased transparency and oversight in the cryptocurrency space. As evidence of this debacle mounts, the regulatory environment may very well pivot to put pressure on those operating in these markets, ultimately pushing for more stringent measures to ensure both security and accountability.
While a Teneo spokesperson confirmed the report’s accuracy to CoinDesk, they chose to abstain from further commentary. It remains to be seen how the outcome of this high-stakes legal battle will shape the industry’s future and restore investor confidence, as the crypto community continues to grapple with the repercussions of last year’s upheaval.
Source: Coindesk
