Founders Who ‘Cannot Be Trusted’ and a $50M Yacht: Three Arrows Capital’s New Bankruptcy Filing Sheds Light on Crypto Hedge Fund’s Epic Decline – Fortune | Vette Leader

Kyle Davies and Zhu Su, the founders of Three Arrows Capital (3AC), are nowhere to be found, but the magnitude of their firm’s gargantuan debt obligations has become clearer. The crypto hedge fund owes $3.5 billion to 27 different companies, including $2.3 billion to digital currency lender Genesis Global Trading, according to a court filing for bankruptcy of the company released Monday.

“3AC is insolvent and should be wound up,” creditors argued in a 1,157-page affidavit filed in a British Virgin Islands court. “Your management cannot be trusted to retain any remaining assets for the benefit of creditors.”

The Singapore-based company was once one of the largest and most well-known crypto funds, with over $10 billion under management. But an ill-timed investment in the Luna coin prompted investors to reclaim their funds, ultimately forcing 3AC to file for Chapter 15 protection and sending its founders on the run from a swarming group of creditors and regulators.

Court-appointed liquidator Teneo uploaded the bankruptcy filing to a website he created called on Monday. Teneo has since removed the post, but the file is zipped on the web and is now being uploaded elsewhere.

Collectively, the hundreds of pages outline the timeline for 3AC’s demise, according to the company’s creditors.

“Things appear to have gone awry in April or May of 2022 when 3AC reportedly spent between $200 million and $600 million to purchase ‘Luna,'” the filing reads. This investment was made at a bad time. In early May, algorithmic stablecoin TerraUSD began to falter from its dollar peg, suggesting that its parent company, South Korea-based Terraform Labs, and Luna, a companion cryptocurrency coin, were running out of funds. By May 12, Luna’s price fell from $80 to pennies as the monetary system collapsed. That day, Davies and another 3AC employee allegedly told creditors that the hedge fund wasn’t “too much” exposed to Terra’s demise, the filing says.

But in mid-June, U.S.-based lenders BlockFi and Genesis reported that 3AC was unable to issue margin calls — when a broker demands that an investor provide more funds to cover potential losses — and the firms began selling some of the holdings liquidated by 3AC. Digital asset brokerage Voyager also said 3AC defaulted on a $646 million loan. At the time, 3AC insisted it was unaware of its exposure to the Terra Luna crash. “We were very surprised by the Terra Luna situation,” said Davies Wall Street Journal in June.

On June 27, a British Virgin Islands court ordered the liquidation of 3AC. A few days later, 3AC filed for Chapter 15 bankruptcy in the Southern District of New York. Meanwhile, creditors have asked a Singapore court to enforce BVI’s winding-up order in order to gain access to 3AC’s Singapore offices.

Davies and Zhu also ignored outreach from creditors and kept their locations hidden in an “extended radio silence,” the filing said. The filing also references a Zoom call between Davies, Zhu and their liquidators, during which the two founders were on mute with cameras turned off.

The filings allege that Zhu and Davies used company funds to pay for a new yacht and other real estate.

“In addition to ignoring all attempts by the company’s creditors to contact the company, Zhu and Kyle Davies had reportedly paid a deposit on a $50 million yacht, with the yacht being sold sometime in the next two years months should be delivered to Italy, “says the files.

Vitalik Buterin, the co-founder of Ethereum, ripped Zhu and Davies in June, say on twitter that there are “far more honorable ways to burn $50 million to impress people than to buy a superyacht.”

Davies wanted the yacht to be more impressive than those owned by “Singapore’s richest billionaires,” the filing says. In the filing, creditors also demanded to see if Zhu and his wife used company funds to buy two Good Class Bungalows, which refer to rare and expensive mansions in Singapore, for US$35 million and US$21 million, respectively to buy.

3AC did not respond Wealth’s Request for comments.

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