FTX Lawyers Challenge 3ACs $1.53 Billion Claim

Lawyers representing the defunct cryptocurrency exchange FTX have contested a $1.53 billion recovery claim submitted by the liquidators of Three Arrows Capital (3AC). The lawyers argue that the losses stemmed from a high-risk trading strategy employed by 3AC, which should not be compensated by FTX's creditors.

3AC's liquidators initially filed a $120 million claim in FTX's bankruptcy proceedings in June 2023, later expanding it to $1.53 billion in November 2024. The claim includes allegations of breach of contract, fiduciary duty, and unjust enrichment. The liquidators asserted that FTX held $1.53 billion in 3AC's assets, which were liquidated to settle liabilities in 2022, contributing to 3AC's collapse. They argued that these transactions were avoidable and that FTX had delayed providing information that could have uncovered the liquidation.

Chief Judge John Dorsey approved the expanded claim in March. However, in a recent objection filed in the US Bankruptcy Court for the District of Delaware, FTX's lawyers described the claims as "illogical and baseless." They argued that 3AC's strategy of betting on increasing crypto prices backfired when prices plummeted, leading to the firm's downfall.

FTX's lawyers contended that 3AC's claim relies on inaccurate account balances from June 12, 2022, when the firm's crypto balance was $1.02 billion, not $1.59 billion, and the negative USD amount was $733 million, not $1.3 billion. They asserted that the lost asset theory, which is central to 3AC's argument, lacks legal or factual merit and that 3AC is owed nothing.

FTX claims that 3AC only had an available balance of $284 million, which was further reduced by market price declines and withdrawals by 3AC totaling $60 million. The lawyers also argued that the liquidation against 3AC was only for $82 million in crypto, which was contractually permitted to ensure compliance with account balance requirements. They stated that this liquidation did not reduce the overall account balance because the value was added to 3AC's fiat account in USD.

FTX's objection highlights that the $82 million liquidation benefited 3AC by preserving the value of its accounts, allowing the firm to exit deteriorating positions in digital assets in favor of stable positions in fiat currency. 3AC has until July 11 to file a reply to FTX's objection, with a non-evidentiary hearing scheduled for August 12 before Chief Judge Karen Owens in the US Bankruptcy Court for the District of Delaware.

In addition to the dispute with FTX, 3AC has pursued a $1.3 billion claim against the collapsed crypto firm Terraform Labs in its bankruptcy case. FTX, which filed for bankruptcy in November 2022, has also been actively seeking to reclaim funds through various legal actions.