Recently unveiled court documents indicate that FTX quietly liquidated $1.53 billion in assets belonging to Three Arrows Capital (3AC) just two weeks prior to the hedge fund’s collapse in 2022. This revelation challenges earlier assumptions that the downfall of 3AC was entirely due to market factors.
Once valued at over $10 billion, 3AC faced bankruptcy in mid-2022 following a series of ill-fated leveraged trades. The hedge fund had borrowed extensively from more than 20 prominent institutions before the cryptocurrency crash in May 2022, which saw Bitcoin (BTC) plummet to $16,000.
However, recent discoveries reveal that the FTX exchange offloaded $1.53 billion of 3AC’s assets just two weeks before the hedge fund’s own liquidation.
3AC “requested a bankruptcy court to permit it to increase its claim against FTX from $120 million to $1.53 billion,” according to statements from a source familiar with the situation.
“3AC indicates that it has only recently uncovered proof that FTX liquidated $1.53 billion of its assets shortly before 3AC entered liquidation, significantly more than the originally claimed $120 million,” the source reported.
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The crypto hedge fund asserts that it was never informed about these liquidations due to FTX’s bankruptcy proceedings. A court determined that 3AC acted in good faith, which allows them to pursue the full $1.53 billion claim in FTX’s bankruptcy case.
On December 21, 2023, a court in the British Virgin Islands restrained $1.14 billion worth of assets owned by 3AC co-founders Kyle Davies and Su Zhu. Following 3AC’s collapse, estimates suggest that creditors are owed approximately $3.3 billion.
Davies has claimed that allegations by the liquidation firm, accusing him and co-founder Su Zhu of “not cooperating,” are overstated.
Related: US court permits Three Arrows to increase FTX claim to $1.53B
The $1.5 billion deficit insufficient to avert 3AC’s bankruptcy
While the newly revealed $1.53 billion figure is considerably larger than what FTX disclosed earlier, it may not have been adequate to prevent 3AC’s insolvency, according to Nicolai Sondergaard, a research analyst:
“From my perspective, even if they had access to the additional $1.5 billion in 2022, they still would not have been able to cover creditor demands or debt repayments.”
“Without being an expert in law, it seems that 3AC, while being granted the chance to pursue a much larger amount, likely won’t receive the full $1.53 billion. It appears plausible they might get more, but the exact amount remains uncertain,” the analyst added.
Related: 3AC liquidators submit a $1.3B claim against Terraform Labs
The co-founder of Binance, Changpeng Zhao, referred to the revelations as an “interesting development.”
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“I am curious if FTX played any role in the LUNA/UST crash and depeg in May 2022,” Zhao remarked in a post.
The downfall of 3AC occurred a month after Terraform Labs’ Terra (LUNC) and TerraClassicUSD (USTC) tokens collapsed, shortly before crypto lender Celsius halted all user withdrawals following a dramatic drop of 90% in its native token, Celsius (CEL).
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