ECONOMY

Bankrupt crypto barons disappear, as Three Arrows Capital assets are liquidated

Sara Edwards
USA TODAY

The founders one of the biggest crypto hedge funds in the world have been off the radar since Friday, with mail piling up at the door of its Singapore office and international regulators attempting to liquidate their fund's assets, according to court documents

Lawyers in charge of liquidating Three Arrows Capital’s British Virgin Island fund said the founders, Zhu Su and Kyle Davies, have not been  involved in the proceedings, despite lawyers for the two founders saying they would fully cooperate. 

The amount of money tied up in the fund and its impact on the crypto market is substantial: Reuters reports that Blockchain.com could lose at least $270 million on funds it loaned to 3AC.

Co-founder Zhu Su briefly resurfaced on Twitter on July 12 after a hiatus since June 14, saying the court-appointed liquidators were "baiting" the two men.

"Sadly, our good faith to cooperate with the Liquidators was met with baiting," he said in the tweet. "Hope that they did exercise good faith wrt the StarkWare token warrants."

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3AC collapses into liquidation 

In late June, the hedge fund, also known as 3AC, fell into liquidation territory, becoming “one of the biggest casualties of the latest so-called 'crypto-winter,'” according to reporting by CNBC

The price of crypto has been plunging for months, causing billions of dollars to be swept off the market, and opening a window into the opaque sector that has exposed issues like 3AC’s liquidity crisis.

Other cryptocurrency companies like lending firm Celsius and cryptocurrency exchange CoinFlex have also been facing liquidity problems.

Teneo Restructuring, a financial advisory business that advises financial stakeholders, has been rounding up and freezing 3AC’s assets. It has also created a website with instructions on how approved creditors can make claims on the assets. 

3AC has multiple loans from other cryptocurrency firms like BlockFi and Genesis Trading, but both those U.S.-based crypto lenders had liquidated some of 3AC’s positions.

3AC, however, was unable to meet BlockFi’s margin call, which is when a trade made on borrowed money suddenly has to cover losses from an investor's pocketbook.

The inability to make a margin call usually alarms bank and institutional investors who may be exposed to risk via assets linked to struggling portions of the market.

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3AC co-founders unresponsive in initial Zoom hearing 

Documents filed in the U.S. Bankruptcy Court for the Southern District of New York showed lawyers for Three Arrows' creditors have not received cooperation from the company's founders as July 8.  

According to the documents, lawyers reported having an initial Zoom call with people identifying themselves as the founders were present. However, video and audio were muted and the two didn’t respond to questions asked to them directly. Those queries were instead answered by the founders’ legal representatives. 

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Court documents also show that authorized foreign representatives attempted to meet with the founders at their Singapore office, but investigators found the offices vacant, with a handful of inactive computer screens and unopened mail pushed under the door or propped up next to it. 

CoinDesk reported that the creditors are seeking to freeze 3AC's assets due to concern that because they consist mostly of cash, cryptocurrency and NFTs, they could be easily transferrable.

Creditors are also requesting that the court subpoena the founders to provide a list of company  holdings including bank accounts, digital assets and all company records.

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SkyNews reported that the fall of the firm could raise questions about how regulatory oversight is following digital assets that have an impact on major finance centers. The crypto landscape is experiencing rapid change as the values of some assets collapse.  

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A hearing was scheduled for Tuesday, July, 12 at 9 a.m. ET, but according to an email from the co-founders lawyer, Christopher Anand Daniel, they would "not be proceeding with the call this evening, Singapore time."

“Depending on your response, we will let you know when our clients can reasonably be expected to speak with you," Daniel wrote.

Blockworks posted an update from the hearing as well.

"Judge Martin Glenn ordered that 3ACs assets in the US should not be transferred or disposed of and also authorized the Foreign Representatives to issue subpoenas in the course of their investigation," the company said.