FTX’s Objection Dismissed as 3AC’s Liquidators Secure a Larger Claim
Court Rules in Favor of 3AC, Rejecting FTX’s Objections
Judge John T. Dorsey of the U.S. Bankruptcy Court for the District of Delaware has ruled in favor of the liquidators of the collapsed crypto hedge fund Three Arrows Capital (3AC), granting them permission to expand their claim against FTX to $1.53 billion. This decision allows 3AC’s liquidators to seek a significantly larger recovery from FTX’s bankruptcy estate, despite objections from FTX’s debtors that the move was premature and unfair.
In his ruling, Judge Dorsey stated that FTX’s debtors were responsible for delaying the submission of 3AC’s amended claim by failing to provide necessary financial records in a timely manner.
“The evidence suggests that the delay in filing the Amended Proof of Claim was, in large part, caused by the Debtors themselves,” Dorsey wrote in the judgment.
Meanwhile, FTX’s debtors, led by CEO John Ray III, argued against the claim expansion, stating that it introduced new legal theories and significantly increased the claim’s amount. However, the court ruled that 3AC’s initial filing had already put FTX on notice of potential future claims, dismissing FTX’s objections.
FTX’s legal representatives have not yet responded to requests for comment.
3AC’s Collapse and Its Impact on the Crypto Industry
Three Arrows Capital was once one of the largest crypto hedge funds, managing over $3 billion in assets. However, the firm collapsed in June 2022 following a sharp downturn in the crypto market, particularly after the crash of TerraUSD (UST) and Luna (LUNA) in May 2022.
Co-founded by Kyle Davies and Su Zhu, 3AC made highly leveraged investments in digital assets, including TerraUSD, which lost nearly all of its value. The fund’s collapse triggered a wave of liquidations across the crypto industry, affecting major lenders such as Voyager Digital and BlockFi, both of which later filed for bankruptcy.
By late June 2022, 3AC had entered court-ordered liquidation in the British Virgin Islands.
3AC’s Expanded Claim and Its Implications
According to court filings, 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 owed to FTX, as revealed in court documents.
Initially, 3AC’s liquidators filed a $120 million claim in FTX’s bankruptcy proceedings in June 2023. However, they later expanded the claim to include allegations of breach of contract, unjust enrichment, and breach of fiduciary duty, increasing the claim amount significantly.
This ruling comes 15 months after 3AC’s liquidators secured a global freeze on $1.4 billion in assets linked to the fund’s co-founders.
In December 2023, a British Virgin Islands court issued an order freezing the assets of Su Zhu, Kyle Davies, and Davies’ wife, Kelly Chen, prohibiting them from accessing funds while legal claims against them are pursued.
Potential Impact on FTX’s Bankruptcy Proceedings
3AC’s liquidators argue that the fund’s co-founders should be held accountable for deepening the company’s financial distress in the weeks leading up to its collapse.
At the same time, this ruling complicates FTX’s already complex bankruptcy process. FTX CEO John Ray III has been working to maximize recoveries for FTX creditors, but with 3AC’s claim now significantly larger, it could affect how the remaining assets are distributed.
The outcome of this case could set a precedent for future crypto bankruptcy cases, particularly those involving multiple failed firms with interconnected financial obligations.
As legal battles continue, FTX creditors, 3AC stakeholders, and crypto investors alike will be watching closely to see how these claims unfold.
