TLDR
- US Bankruptcy Court granted Three Arrows Capital permission to increase their FTX claim from $120 million to $1.53 billion
- The revised claim now includes allegations of breach of contract, fiduciary duty violations, and unjust enrichment
- Judge John T. Dorsey blamed FTX for delays in providing crucial documents to 3AC liquidators
- 3AC collapsed in June 2022 after making heavily leveraged bets on digital assets, including TerraUSD
- This development comes as former FTX CEO Sam Bankman-Fried seeks a presidential pardon from Donald Trump
A new development has emerged in the FTX bankruptcy case. The Delaware Bankruptcy Court has approved Three Arrows Capital’s request to expand their claim against FTX.
The court ruling allows 3AC to pursue $1.53 billion from FTX. This is a huge jump from their initial $120 million claim filed in June 2023.
Judge John T. Dorsey made the decision after reviewing evidence from both sides. He ruled that 3AC’s liquidators had provided enough notice about their claims.
The judge also found that FTX was largely responsible for delays. Their failure to share important records in a timely manner hampered the liquidators’ investigation.
“The evidence suggests that the delay in filing the Amended Proof of Claim was, in large part, caused by the Debtors themselves,” wrote Judge Dorsey in his ruling. This statement directly countered FTX’s main objection.
FTX had fought against the amendment. They argued it was filed too late and unfairly expanded the scope of claims against them.
The bankrupt exchange claimed the original proof of claim didn’t properly signal the nature or amount of the new claims. However, Judge Dorsey wasn’t convinced by these arguments.
The court found that 3AC’s original filing had adequately put FTX “on notice of the possibility of the later asserted claims.” This legal reasoning formed the basis for dismissing FTX’s objections.
Russell Crumpler and Christopher Farmer, the joint liquidators for 3AC, filed the motion. They faced many challenges during their investigation into 3AC’s dealings with FTX.
The liquidators struggled with incomplete records from 3AC. They also received little help from founders Kyle Davies and Su Zhu, making their job much harder.
Key information only became available after FTX filed for bankruptcy in November 2022. Many critical documents weren’t shared until late 2023 and early 2024.
This delay prevented the liquidators from fully understanding how extensive 3AC’s transactions with FTX were. The truth only emerged after the original claims deadline had passed.
Court documents show that 3AC held $1.53 billion in assets on FTX as of June 12, 2022.
Over the next two days, those assets were liquidated to cover a $1.3 billion debt to FTX. This happened just two weeks before 3AC entered its own liquidation process.
The expanded claim includes several new allegations. 3AC now accuses FTX of breach of contract, breach of fiduciary duty, and unjust enrichment.
Three Arrows Capital Collapse
Three Arrows Capital was once a giant in the crypto hedge fund world. At its peak, it managed over $3 billion in assets before its dramatic collapse in June 2022.
The fund’s downfall came after making risky bets on digital assets. Their heavy investment in TerraUSD proved disastrous when that stablecoin lost nearly all its value in May 2022.
The 3AC collapse sent ripples through the entire crypto industry. It triggered a series of liquidations affecting major crypto lenders like Voyager Digital and BlockFi.
This court decision comes 15 months after another legal victory for 3AC’s liquidators. In December 2023, they secured a worldwide freeze on $1.4 billion in assets tied to the fund’s co-founders.
A British Virgin Islands court issued the order, blocking Zhu, Davies, and Davies’ wife, Kelly Chen, from accessing their funds. The freeze remains active while legal claims against them move forward.
The liquidators believe the founders made the company’s financial problems worse. They argue that decisions in the weeks before 3AC’s collapse deepened the fund’s troubles.
Su Zhu
Su Zhu, one of 3AC’s co-founders, ran into his own legal problems in September 2023. He was arrested in Singapore while attempting to leave the country from Changi Airport.
His arrest followed a committal order by Singapore courts against him. According to Teneo, the joint liquidators, “Mr. Zhu will be held in prison” while legal proceedings continue.
Meanwhile, this ruling adds another chapter to the ongoing FTX saga. The exchange’s collapse in November 2022 came amid serious allegations of fraud under former CEO Sam Bankman-Fried.
Bankman-Fried is currently pursuing a presidential pardon from Donald Trump. As part of this effort, he has been aligning himself with conservative figures.
He recently appeared on Tucker Carlson’s show to make his case. Reports indicate he has also consulted with a lawyer who has connections to Trump.
Despite Trump’s history of granting pardons, many experts remain skeptical. Bankman-Fried lacks strong support within the crypto community, which could hurt his chances for clemency.
Representatives for FTX debtors did not immediately respond to requests for comment on the court’s decision. The ruling is expected to complicate the already complex FTX bankruptcy process.
