Three Arrows Capital Boosts FTX Claim to $1.53 Billion

The US Bankruptcy Court for the District of Delaware has granted a significant motion in the ongoing bankruptcy proceedings involving Three Arrows Capital (3AC) and FTX. The court has approved 3AC’s liquidators to increase their claim against FTX from $120 million to $1.53 billion. This decision marks a pivotal moment in the complex legal battle between the two entities.

Judge John T. Dorsey ruled in favor of 3AC’s joint liquidators, Russell Crumpler and Christopher Farmer, allowing them to expand their claim. The original claim, filed in June 2023, sought to recover funds related to a $120 million loan allegedly owed by 3AC to FTX. However, further investigation revealed that just two weeks before 3AC entered liquidation, approximately $1.53 billion of 3AC’s assets on the FTX platform were liquidated to satisfy $1.3 billion in liabilities to FTX. This discovery led the liquidators to amend their claim, adding allegations of breach of contract, breach of fiduciary duty, and unjust enrichment against FTX.

The court documents highlight the challenges faced by the liquidators, including a lack of proper records from 3AC and minimal cooperation from its founders, Kyle Davies and Su Zhu. The liquidators also struggled to obtain key documents, which only became available in late 2023 and early 2024, after FTX had filed for bankruptcy in November 2022. FTX objected to the motion to amend the claim, arguing that it was filed too late and expanded the scope beyond what was allowed in the bankruptcy process. However, Judge Dorsey dismissed these objections, stating that the delay in filing the amended proof of claim was largely caused by FTX’s failure to provide necessary documents promptly.

Three Arrows Capital, once one of the largest crypto hedge funds managing over $3 billion in assets, collapsed in June 2022 following a sharp downturn in the crypto market. The fund had placed heavily leveraged bets on digital assets, including the TerraUSD stablecoin, which crashed in May 2022. The collapse of 3AC sent shockwaves through the crypto industry, triggering a wave of liquidations affecting lenders such as Voyager Digital and BlockFi.

This latest ruling adds another layer to the complex FTX bankruptcy saga, which involves allegations of fraud and mismanagement under former CEO Sam Bankman-Fried. Meanwhile, Bankman-Fried is reportedly trying to secure a pardon from President Donald Trump, aligning himself with right-wing figures and consulting with a lawyer linked to Trump. However, many remain doubtful about his chances of receiving presidential clemency due to his lack of support within the crypto community.

The ruling on 3AC’s expanded claim comes 15 months after another key development. In December 2023, 3AC’s liquidators secured a worldwide freeze on $1.4 billion in assets tied to the fund’s co-founders. This order, issued by a British Virgin Islands court, blocks Zhu, Davies, and Davies’ wife, Kelly Chen, from accessing funds. The freeze remains in place while claims against them are pursued. The liquidators argue that the founders should be held accountable for decisions that worsened 3AC’s financial troubles in the weeks before its collapse. Su Zhu, one of 3AC’s co-founders, was arrested in Singapore in September 2023 as he attempted to leave the country following a committal order by Singapore courts.