TLDR
- US bankruptcy court allowed Three Arrows Capital (3AC) liquidators to increase their claim against FTX from $120 million to $1.53 billion
- Judge John Dorsey ruled that delays were caused by FTX’s failure to share records promptly
- 3AC liquidators allege FTX held $1.53 billion in hedge fund assets that were liquidated to settle $1.33 billion in liabilities in 2022
- 3AC was once one of the largest crypto hedge funds with over $3 billion in assets before collapsing in June 2022
- The ruling adds another layer to FTX’s complex bankruptcy proceedings, which include suits against SkyBridge Capital, Binance, and Waves founder
A US bankruptcy court has approved a major increase in Three Arrows Capital’s claim against collapsed crypto exchange FTX. The ruling allows 3AC liquidators to pursue $1.53 billion, up from their initial $120 million claim filed in June 2023.
Chief Judge John Dorsey of the US Bankruptcy Court for the District of Delaware rejected FTX’s arguments against the amended claim. He ruled on March 13 that 3AC liquidators had provided enough notice about their claim and the possibility of changes.
The judge placed blame on FTX for the delays. “The evidence suggests that the delay in filing the Amended Proof of Claim was, in large part, caused by the Debtors themselves,” Dorsey stated in his ruling.
FTX repeatedly delayed sharing information
The court found that FTX repeatedly delayed sharing important information. This happened despite FTX having the complete information in their possession that 3AC liquidators needed.
Three Arrows Capital was once a major player in the crypto industry. Before its collapse in June 2022, the hedge fund managed over $3 billion in assets.
The fund’s fall came during a sharp downturn in crypto markets. 3AC had made heavily leveraged bets on digital assets, including the TerraUSD stablecoin which crashed in May 2022.
3AC’s collapse triggered problems across the crypto industry. It affected lenders such as Voyager Digital and BlockFi, creating a domino effect of financial troubles.
The fund entered court-ordered liquidation in the British Virgin Islands in late June 2022. Since then, liquidators have been working to recover funds for creditors.
According to court documents, 3AC held $1.53 billion in assets on FTX as of June 12, 2022. Over the next two days, those assets were liquidated to cover a $1.3 billion debt owed to FTX.
The liquidators allege several claims against FTX. These include breach of contract, unjust enrichment, and breach of fiduciary duty related to how FTX handled 3AC’s assets.
FTX debtors, led by CEO John Ray III, objected to the amended claim. They argued it introduced new legal theories and greatly increased the claim size.
However, the court found that 3AC’s original filing had properly notified FTX “of the possibility of the later asserted claims.” This led to the dismissal of FTX’s objections.
This ruling comes while 3AC liquidators pursue other recovery efforts. They filed a $1.3 billion claim against Terraform Labs in Terra’s bankruptcy case.
The liquidators also secured a worldwide freeze on $1.4 billion in assets. This freeze, ordered by a British Virgin Islands court in December 2023, blocks 3AC co-founders Su Zhu and Kyle Davies from accessing funds.
FTX has its own recovery efforts underway. The exchange filed for bankruptcy in November 2022 and has been trying to reclaim funds through various lawsuits.
FTX is trying to recover money spent by Sam Bankman-Fried
These lawsuits target SkyBridge Capital and its founder Anthony Scaramucci. FTX is trying to recover money spent by former CEO Sam Bankman-Fried on sponsorship and investment deals.
Another lawsuit went after crypto exchange Binance and its former CEO Changpeng Zhao. FTX seeks to recover $1.76 billion worth of cryptocurrency sent to Binance as part of a July 2021 repurchase deal.
FTX is also pursuing Waves founder Aleksandr Ivanov. The exchange wants to recover $80 million worth of crypto sent to the Waves-based decentralized liquidity protocol by Alameda Research in 2022.
Su Zhu, one of 3AC’s co-founders, was arrested in Singapore in September 2023. This happened as he attempted to leave the country via Changi Airport following a court order against him.
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