The entire stablecoin market is now worth more than $160 billion.
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The co-founders of failed crypto hedge fund Three Arrows Capital appear to be on the run from creditors, according to court documents recently filed in New York.
Attorneys representing the creditors say the physical whereabouts of Zhu Su and Kyle Davies, who founded Three Arrows in 2012, is “currently unknown” ahead of a hearing scheduled at 9 a.m. ET Tuesday to next Discuss steps in the liquidation process. The documents filed Friday night also allege that the founders have not yet begun to participate in the liquidation process “in a meaningful way”. On Monday, lawyers asked the court to keep the identity of the creditors anonymous.
Zhu and Davies did not respond to requests for comment.
Three Arrows, also known as 3AC, had approximately $10 billion in assets under management as of March. On July 1, the company filed for Chapter 15 bankruptcy protection from US creditors in the Southern District of New York after a cryptocurrency slump and the collapse of stablecoin project terraUSD (UST) wiped out its assets.
Before filing for bankruptcy, a British Virgin Islands court ordered the liquidation of the ailing fund to pay off its debts.
Now 3AC faces bankruptcy court and faces angry lenders who want their money back. Global consulting firm Teneo was hired to help manage the liquidation, beginning with trying to determine what was left.
According to Friday’s court filing, Zhu and Davies, both former Credit Suisse traders, took part in an introductory Zoom call last week to discuss basic steps to preserving their assets. Neither founder turned on their video, and both remained silent for the duration, with all dialogue conducted by an attorney. Her lawyers said at the time they “intended to cooperate.”
During the meeting, representatives helping to facilitate the liquidation requested immediate access to 3AC’s offices and information related to their bank accounts and digital wallets. According to the file, this access was not granted until Friday.
When the fund’s liquidators arrived at 3AC’s Singapore office in late June to meet with the founders, “the offices appeared empty except for a number of inactive computer screens.”
The filing states that with the office door locked, agents were able to see unopened mail addressed to Three Arrows that “appeared to have been pushed under the door or propped against the door.” Neighbors at surrounding offices said they last saw people at the 3AC office in early June.
Meanwhile, creditors are trying to determine what assets remain.
Teneo’s Russell Crumpler, who has been tasked with facilitating the bankruptcy process, said in an affidavit that there was a “real risk” that 3AC’s assets would disappear “without immediate authority to investigate”.
“This risk is increased because a significant portion of the debtor’s assets consist of cash and digital assets, such as cryptocurrencies and non-fungible tokens, which are easily transferrable,” Crumpler said in his statement.
There are reasons for this concern. One of 3AC’s NFTs was transferred to another crypto wallet, according to a well-known NFT collector and investor.
In Friday’s filing, creditors requested that the court stay 3AC’s right to transfer or dispose of assets. The lawyers are also asking that the court subpoena the founders or others who may have information about 3AC’s assets. This could include banks, crypto exchanges and counterparties.
3AC’s bankruptcy was already having a major impact on the broader crypto market as so many institutions had banked money with the company.
Digital asset brokerage Voyager Digital filed for Chapter 11 bankruptcy protection after 3AC failed to repay the approximately $670 million it borrowed from the company. US-based crypto lenders Genesis and BlockFi, crypto derivatives platform BitMEX and crypto exchange FTX are also hit by losses.
— CNBC’s Dan Mangan contributed to this report.
CLOCK: Voyager Digital suspends payouts as Three Arrows Capital files for bankruptcy