U.S. bankruptcy judges have granted the liquidators of Three Arrows Capital, a defunct hedge-fund company, permission to extend their claim on FTX up to $1.53 billion. They rejected objections made by FTX’s creditors that this move was unfair and out-of date.
Judge John T. Dorsey of U.S. Bankruptcy Court District of Delaware ruled Thursday that 3AC liquidators provided adequate notice of their claims and were hindered in their investigations by FTX failing to provide relevant records on a timely basis.
In the ruling, Dorsey stated that “the evidence indicates that the debtors themselves were largely responsible for the delay” in filing an Amended Proof of Claim.
FTX’s creditors, headed by CEO John Ray III, objected meanwhile to the amended claim, arguing it introduced new theories of law and substantially increased its size.
The court dismissed the objections of the creditors, finding that 3AC had “put FTX on notice” of any later claims.
No immediate response was received from the legal representatives of FTX Debtors. Decrypt's Request for comments
3AC was once the largest crypto hedge fund with assets of over $3 billion. It collapsed on June 20, 2022, following a steep decline in cryptocurrency markets.
The fund founded by Kyle Davies, Su Zhu and others had heavily leveraged wagers placed on digital assets including TerraUSD, the stablecoin that lost almost all of its value in 2022.
A wave of liquidations in the crypto-industry was triggered by 3AC’s collapse, including Voyager Digital (a lender) and BlockFi.
A court in British Virgin Islands ordered the liquidation of this fund in June 2022.
3AC, according to filings in court, held assets worth $1.53bn on FTX by June 12, 2022. Court documents indicate that over the following two days these assets were sold to pay a debt of $1.3 billion owed by FTX.
3AC’s liquidators originally filed a $120-million claim in FTX’s bankruptcy case, in June of 2023. However, they later expanded the claims, claiming breach of contracts, unjustenriched, and breach fiduciary duties.
The decision comes 15 months since 3AC’s Liquidators successfully secured a global freeze of $1.4 Billion in assets related to 3AC’s founders.
In a December 2023 court order issued in the British Virgin Islands, Zhu Davies and Davies wife Kelly Chen are prohibited from accessing any funds until claims filed against them have been resolved.
The liquidators claim that the founders are responsible for the financial problems of 3AC in the last few weeks leading up to its collapse.
