Three Arrows Capital (3AC), a Singapore-based crypto hedge fund, stands as a stark example of the significant insolvencies that have rocked the crypto world. The recent British Virgin Islands (BVI) court order to freeze over $1 billion in assets of its founders, Kyle Davies, and Su Zhu, marks another chapter in the tumultuous saga of 3AC, which has become emblematic of the crypto market’s instability and the onset of the so-called ‘crypto winter,’ as pointed out by FinTelegram.
Background of 3AC’s Downfall
3AC‘s troubles began with its failure to meet margin calls and repay a substantial loan to the crypto broker Voyager, amounting to over $665 million in Bitcoin and USD Coin. This default led to the firm’s liquidation, ordered by a BVI court in June 2022. By June 2023, liquidators from New York-based Teneo were seeking to recover $1.3 billion from Davies and Zhu. The freezing order also includes assets belonging to Kelly Chen, Davies’ wife, preventing any transfer or liquidation of these digital assets.
Financial State and Creditor Recovery
Teneo’s latest update estimates a 45.74% recovery rate for 3AC’s creditors. While the frozen assets are valued at approximately $1.14 billion, creditors are owed more than $3 billion, illustrating the severity of 3AC‘s financial mismanagement.
Post-collapse, Zhu and Davies have been accused of hindering the liquidation process, including seeking Chapter 15 bankruptcy protection in the U.S. to allegedly prevent asset seizure. They have also faced accusations of evading subpoenas and legal compliance, prompting the liquidator to request daily fines for non-compliance.
Zhu’s Arrest and Regulatory Action
In a dramatic turn of events, Su Zhu was arrested in September 2023 at Changi Airport in Singapore. Although Zhu currently serves four months in prison for non-cooperation with liquidators, the case remains a civil issue in Singapore without criminal charges. However, the Monetary Authority of Singapore (MAS) has banned both Zhu and Davies from regulated financial activities for nine years due to their failure in risk management and misinformation.
Impact on the Crypto Industry
The collapse of 3AC, closely following the Terra-Luna ecosystem’s implosion, triggered a domino effect, leading to a series of bankruptcies in the crypto sector, including Voyager Digital, Celsius Networks, and FTX. This wave of failures underscores the critical need for more robust regulatory oversight and risk management in the crypto industry.
