FTX Liquidated $1.53 Billion in 3AC Assets Before Collapse

In a surprising turn of events, court documents have revealed that FTX liquidated $1.53 billion in assets belonging to Three Arrows Capital (3AC) just two weeks before the hedge fund's collapse in mid-2022. This disclosure challenges the previously held belief that 3AC's downfall was solely due to market conditions.

3AC, once valued at over $10 billion, faced significant financial distress after a series of leveraged trades went awry. The hedge fund had borrowed from over 20 large institutions before the May 2022 crypto crash, which saw Bitcoin (BTC) plummet to $16,000. The liquidation of 3AC's assets by FTX occurred over two days, from June 12, 2022, to June 14, 2022, as 3AC held $1.53 billion in assets on FTX. The liquidation was executed to cover a substantial debt, amounting to $1.3 billion.

3AC has since filed a claim in a bankruptcy court to increase its claim against FTX from $120 million to $1.53 billion. The hedge fund asserts that it was unaware of these liquidations due to FTX's own bankruptcy proceedings. A court ruled that 3AC acted in good faith, allowing it to pursue its full $1.53 billion claim in FTX’s bankruptcy case.

On Dec. 21, 2023, a British Virgin Islands court froze $1.14 billion worth of 3AC co-founder Kyle Davies and Su Zhu’s assets. Teneo has since estimated that 3AC creditors are still owed roughly $3.3 billion following the hedge fund’s collapse in 2022. Davies claimed that allegations from Teneo — the firm in charge of 3AC’s liquidation — that he and co-founder Su Zhu were “not cooperating” were exaggerated.

The liquidation of 3AC's assets by FTX raises several critical questions about the financial health of both entities and the broader implications for the crypto industry. The timing of the liquidation, just two weeks before 3AC's collapse, suggests that FTX may have had prior knowledge of the hedge fund's financial distress. This could imply that FTX took proactive measures to protect its own interests by liquidating 3AC's assets, thereby minimizing potential losses.

The collapse of 3AC had far-reaching consequences across the crypto industry, triggering a wave of liquidations and financial instability. The liquidation of 3AC's assets by FTX was a significant factor in the hedge fund's downfall, as it left 3AC with insufficient resources to cover its debts and obligations. This event serves as a stark reminder of the interconnected nature of the crypto industry and the potential for one entity's collapse to have ripple effects throughout the market.

The revelation of FTX's liquidation of 3AC's assets also raises questions about the transparency and accountability of crypto exchanges. The secretive nature of the transaction and the lack of disclosure to the public or regulatory authorities highlight the need for greater oversight and regulation in the crypto industry. As the industry continues to evolve, it is crucial for exchanges to operate with transparency and accountability, ensuring that investors and stakeholders are protected from financial risks and potential losses.