Liquidators at Three Arrows Capital, a bankrupt cryptocurrency hedge fund, are intensifying their efforts to recover $1.3 billion from the co-founders, Su Zhu and Kyle Davies. The amount sought reflects the losses allegedly incurred by the founders prior to the collapse of the firm.
The liquidators discussed the allegations against Zhu and Davies during a meeting with the hedge fund’s creditors. The co-founders are accused of leveraging the firm significantly between May and June 2022, after incurring substantial losses on Luna tokens and other investments.
The liquidators claim that Three Arrows was already insolvent at the time, prompting them to take legal action against Zhu and Davies in a British Virgin Islands court, aiming to recover the losses for the firm’s creditors.
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Efforts to reach Zhu and Davies for comment have been unsuccessful thus far. Zhu had previously mentioned in a Twitter post last June that their attempts to cooperate with liquidators were met with hostility.
The failure of Three Arrows had a ripple effect on other platforms exposed to the hedge fund, including BlockFi and Voyager Digital Ltd., both of which filed for bankruptcy shortly after the liquidation.
The allegations against Zhu and Davies by the liquidators mark an escalation of their actions. The liquidators, who are partners at the consulting and advisory firm Teneo, were appointed by a British Virgin Islands court to recover funds for Three Arrows’ creditors, who are owed approximately $3.3 billion.
In recent court filings, the liquidators requested a New York bankruptcy judge to impose a fine of $10,000 per day on Davies for his failure to respond to a subpoena seeking business records and other information. While the current whereabouts of Zhu and Davies are unknown, court papers referenced an article from The New York Times stating that Davies traveled to Bali after the collapse of Three Arrows.
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The bankruptcy of Three Arrows Capital in 2022 was a significant event in the crypto industry. The firm, burdened by losses on Luna and TerraUSD cryptocurrencies in May, filed for bankruptcy in the British Virgin Islands in June. The liquidators were appointed by the court to wind down the company, settle its debts, and initiated a parallel bankruptcy case in Manhattan to protect the firm’s US assets.
In a recent development, non-fungible tokens previously owned by Three Arrows were sold for $10.9 million at an auction by Sotheby’s in New York. One artwork from the collection, Dmitri Cherniak’s “The Goose,” was sold for $6.2 million in June.
Earlier this year, Zhu and Davies announced a goal to raise $25 million to start a new crypto exchange, just two months after the collapse of exchange FTX, which the new crypto exchange seems to be taking advantage. For one, they named the company GTX, with the pitch deck starting with the line: “because G comes after F”.
Information for this briefing was found via Bloomberg, Coin Telegraph, and sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
