FTX Denies 3AC's $1.53 Billion Claim Blaming Risky Trading

Bankrupt crypto exchange FTX has contested a $1.53 billion recovery claim by Three Arrows Capital (3AC), asserting that the hedge fund's own risky trading strategies led to its downfall and that FTX should not be held liable for the losses. In a recent court filing, FTX's lawyers argued that 3AC's collapse was a result of its own speculative bets and subsequent liquidation of assets, rather than any action taken by FTX. The lawyers stated that 3AC had bet heavily on increasing cryptocurrency prices using funds it did not possess, and when prices dropped, the hedge fund liquidated its risky positions and withdrew assets from FTX.

The Delaware court overseeing FTX’s bankruptcy proceedings allowed 3AC’s liquidators to increase their claim from an initial $120 million to $1.53 billion earlier this year. This increase came after 3AC’s legal team allegedly uncovered new evidence suggesting that FTX had liquidated $1.53 billion of 3AC’s assets two weeks before the hedge fund initiated its own liquidation in June 2022. FTX’s lawyers countered that the liquidation was necessary to satisfy a loan to FTX, but 3AC’s lawyers disputed this, arguing that the loan was not adequately documented. The bankruptcy court ruled in favor of 3AC, finding insufficient evidence to support FTX’s claim of a loan.

In the latest filing, FTX’s legal representatives stated that on June 12, 2022, the actual value of assets in 3AC’s accounts was $284 million, comprising $1.017 billion in digital assets and a negative $733 million in US dollars. They also noted that the only liquidation of 3AC’s assets ordered by FTX occurred on June 14, 2022, converting $82 million in crypto to cash, a move they argued benefited 3AC rather than FTX. FTX’s lawyers accused 3AC’s liquidators of inflating the value of 3AC’s assets by over $1.2 billion and ignoring the fact that the loss in account value was due to market declines and 3AC’s own withdrawals, not any action by FTX.

FTX’s lawyers further argued that 3AC’s liquidators are attempting to shift the burden of 3AC’s failed strategy onto other exchange customers and creditors by making illogical and baseless claims for $1.53 billion. They asserted that 3AC is owed nothing and that the court should reject the claim. FTX, once one of the largest crypto exchanges globally, filed for bankruptcy protection in November 2022 following its collapse. The exchange's recovery trust has begun distributing $5 billion to creditors. 3AC collapsed in June 2022, one month after the Terra/LUNA ecosystem's failure, triggering a series of collapses among major crypto companies.

3AC has until July 11 to file an objection before the hearing scheduled for August 12. The outcome of this dispute will have significant implications for the ongoing bankruptcy proceedings and the distribution of assets among creditors. The legal battle highlights the complex web of financial relationships and the high-stakes nature of the crypto industry, where the collapse of one entity can have far-reaching consequences for others.