A US bankruptcy court has made a favorable decision for Three Arrows Capital (3AC), permitting the failed cryptocurrency hedge fund to raise its claim against the defunct exchange FTX to $1.53 billion.
This latest ruling substantially increases the initial claim of $120 million that 3AC’s liquidators had put forth.
### Legal Proceedings
As detailed in a court filing from March 13, the liquidators first submitted their $120 million claim in June 2023, alleging that FTX had wrongly seized assets prior to the hedge fund’s downfall. However, more than a year later, the claim was adjusted, stating:
“Just two weeks before the commencement of the 3AC Liquidation, the $1.53 billion of assets that 3AC had on the FTX platform were liquidated to satisfy $1.3 billion in liabilities to FTX.”
FTX’s bankruptcy estate contested these assertions, arguing that the revisions were filed too late and included new claims that diverged from the original submission. The legal representatives of FTX maintained that accepting the modification would disrupt their restructuring efforts and impose an unfair financial strain. They asserted that their bankruptcy reorganization strategy relied on 3AC’s claim remaining unchanged.
### Court Decision
Yet, Judge John T. Dorsey of the US Bankruptcy Court for the District of Delaware dismissed FTX’s challenges, acknowledging that while the exchange’s concerns were somewhat valid, they did not provide adequate evidence to support their case.
The court also noted that 3AC’s initial filing had already suggested the potential for additional legal action. In addressing FTX’s claims that 3AC had intentionally delayed its filing, the court found no evidence of bad faith, highlighting the substantial difficulties faced by 3AC’s team, such as missing documentation, restricted access to FTX’s internal systems, and a lack of cooperation from pivotal individuals.
Judge Dorsey partially attributed the delays to FTX, indicating that the exchange’s lack of transparency complicated 3AC’s ability to promptly evaluate its financial losses. He criticized FTX for limiting access to key individuals and providing only raw transaction data, which hindered the liquidators’ efforts to piece together the entire picture. The Judge remarked:
“[FTX] gave the Liquidators only the raw data regarding the individual 3AC transactions on the FTX platform, and restricted access to the individuals who might be able to help put the puzzle together. [Their] assertions now that the Liquidators should be penalized for failing to assemble the puzzle faster is not well taken.”