The Bankruptcy Proceedings and Frozen Assets of Three Arrows Capital
The bankruptcy proceedings for cryptocurrency hedge fund Three Arrows Capital (3AC) continue to send shockwaves through the crypto industry. A court in the British Virgin Islands has frozen more than $1 billion in assets connected to 3AC’s founders, Su Zhu and Kyle Davies, in an attempt to recover creditor losses stemming from the firm’s high-profile collapse in 2022.
The Frozen Assets and Allegations
A court has frozen over $1 billion in assets connected to Three Arrows Capital (3AC) founders Su Zhu and Kyle Davies and Davies’ wife to recover losses for creditors. The order comes from liquidators alleging the founders should be liable for 3AC’s collapse, leaving an estimated $3.3 billion owed to creditors. Zhu was previously arrested in Singapore in September when trying to flee after being sentenced to 4 months in prison over the firm’s failure. Both Zhu and Davies, who remains at large, have been banned from regulated finance activities in Singapore for 9 years by the central bank. 3AC was one of the largest crypto hedge funds before failing to meet margin calls and filing for bankruptcy amid 2022’s crypto winter.
The Worldwide Freezing Order
The worldwide freezing order, sought by liquidation firm Teneo, also restricts any asset transfers by Davies’ wife Kelly Chen. According to Teneo, the order relates to allegations that 3AC’s founders should be held liable for the fund’s failure, which left an estimated $3.3 billion owed to global creditors. “The worldwide freezing order has been sought in connection with claims that are being pursued by the liquidators that allege, among other things, that the founders should be held responsible for causing 3AC’s position to deteriorate by an amount that is equivalent to the value of the freezing orders sought,” Teneo said.
The Implosion of Three Arrows Capital
The new legal trouble compounds previous indictments against Zhu and Davies over Three Arrows Capital’s summer implosion during the broader crypto market crash of 2022. Founded in 2012, 3AC had established itself as one of the crypto industry’s largest and most successful hedge funds. However, the firm was unable to meet margin calls from its lenders when the Terra ecosystem collapsed in May 2022, sparking a chain reaction of liquidity issues across cryptocurrencies.
The Fallout and Regulatory Actions
Despite its founders’ pedigree as star traders in digital asset markets, Three Arrows Capital was caught flat-footed with excessive exposure when prices plunged. The firm quickly unraveled and filed for bankruptcy, rocking crypto markets and inflicting major losses on investors and lenders. The fallout saw Zhu arrested in September 2023 when reportedly attempting to secretly leave Singapore after receiving a four-month prison sentence in connection with 3AC’s failure. His co-founder Davies also faces imprisonment, but his current whereabouts remain unknown. Regulators have also come down hard. Singapore’s central bank banned both Zhu and Davies from any future regulated financial activities for nine years within the country.
The Ongoing Legal Actions
Yet even with its founders stripped of future participation, the negative impacts from Three Arrows Capital’s billion-dollar hole continue spreading. Teneo’s worldwide freezing order aims to claw back assets tied to the two traders most squarely blamed for the fund’s reckless unraveling last year. With liquidators alleging Zhu and Davies whittled away Three Arrows’ capital buffers that should have protected against market volatility, the former stars now face potential personal liability reaching into the billions. Ongoing legal actions underscore that the fallen hedge fund’s blast radius still has much further to run.
Hot Take: The Fallout and Legal Consequences of Three Arrows Capital’s Collapse
The bankruptcy proceedings of Three Arrows Capital have caused a ripple effect in the crypto industry. The court’s decision to freeze over $1 billion in assets connected to the founders, Su Zhu and Kyle Davies, highlights the attempt to recover losses for creditors. The liquidators allege that the founders should be held responsible for the collapse of 3AC, which left billions owed to creditors. This legal trouble compounds previous indictments against Zhu and Davies, who were unable to meet margin calls when the Terra ecosystem collapsed. With ongoing legal actions and regulatory consequences, the fallout from Three Arrows Capital’s failure continues to impact the industry.
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