Three Arrows Capital Liquidators Granted $1.53 Billion Claim Against FTX

• A U.S. court approved the expansion of Three Arrows Capital’s claim against FTX to $1.53 billion.
• The court dismissed objections from FTX’s debtors and ruled in favor of 3AC’s liquidators.
• Three Arrows Capital’s collapse in 2022 triggered a chain of events affecting major crypto lenders.

A U.S. bankruptcy court has authorized liquidators of the defunct hedge fund Three Arrows Capital (3AC) to expand their claim against FTX to $1.53 billion. The ruling was made by Judge John T. Dorsey of the U.S. Bankruptcy Court for the District of Delaware. The court dismissed objections raised by FTX’s debtors and allowed the 3AC liquidators to pursue a significantly larger recovery.

Court Ruling Clears Path for Expanded Claim

The court ruled that 3AC’s liquidators had provided sufficient notice of their claims. Judge Dorsey emphasized that delays in filing were largely due to FTX’s failure to deliver key financial documents on time. FTX’s debtors, led by CEO John Ray III, had contested the expansion of the claim. They argued that the amended claim introduced new legal issues and a substantial increase in the amount sought. However, the court determined that 3AC’s original filing had already raised concerns about potential claims, making the objections irrelevant.

Three Arrows Capital collapsed in June 2022 after facing significant losses in the crypto market. The firm, once a prominent crypto hedge fund, had taken highly leveraged positions in assets like TerraUSD. The collapse of TerraUSD in May 2022 contributed to the downfall of 3AC, triggering a chain reaction in the crypto sector. The firm’s failure led to the insolvency of several major lenders, including Voyager Digital and BlockFi.

Ongoing Legal Challenges for 3AC

The financial records from June 12, 2022, indicate 3AC had $1.53 billion worth of assets on FTX. FTX proceeded to sell all the funds owned by 3AC to repay their $1.3 billion debt. The liquidators from 3AC filed their first $120 million claim against FTX within June 2023 as part of the bankruptcy proceedings. 3AC dropped the original claim but introduced new points through the amended document which contained breach of contract and several legal breaches.

The legal battles surrounding Three Arrows Capital continue. In December 2023, a British Virgin Islands court froze $1.4 billion in assets linked to 3AC founders Kyle Davies and Su Zhu, as well as Zhu’s wife, Kelly Chen. The freeze prevents the individuals from accessing these assets while legal proceedings continue. Liquidators have accused the founders of mismanaging funds in the lead-up to 3AC’s collapse.