A U.S. bankruptcy court has granted liquidators of defunct hedge fund Three Arrows Capital (3AC) permission to expand their claim against FTX to $1.53 billion, rejecting objections from FTX’s debtors that the move was untimely and unfair.
Judge John T. Dorsey of the U.S. Bankruptcy Court for the District of Delaware ruled on Thursday that 3AC’s liquidators had provided sufficient notice of their claim and were hampered in their investigation by FTX’s failure to share relevant 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 decision.
FTX’s debtors, led by CEO John Ray III, meanwhile, objected to the amendment, arguing that it introduced new legal theories and significantly increased the claim’s size.
However, the court found that 3AC’s original filing had put FTX “on notice of the possibility of the later asserted claims,” dismissing the debtors’ objections.
Legal representatives for FTX debtors did not immediately respond to Decrypt’s request for comment.
3AC, once one of the most significant crypto hedge funds with over $3 billion in assets, collapsed in June 2022 following a sharp downturn in crypto markets.
The fund, founded by Kyle Davies and Su Zhu, had placed heavily leveraged bets on digital assets, including the TerraUSD stablecoin, which lost nearly all its value in May 2022.
The collapse of 3AC triggered a wave of liquidations across the crypto industry, affecting lenders such as Voyager Digital and BlockFi.
The fund entered court-ordered liquidation in the British Virgin Islands in late June 2022.
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, court documents show.
3AC’s liquidators initially filed a $120 million claim in FTX’s bankruptcy case in June 2023, but later expanded it, alleging claims including breach of contract, unjust enrichment, and breach of fiduciary duty.
The ruling comes 15 months after 3AC’s liquidators also secured a worldwide freeze on $1.4 billion in assets tied to the fund’s co-founders.
The December 2023 order, issued by a British Virgin Islands court, blocks Zhu, Davies, and Davies’ wife, Kelly Chen, from accessing funds while claims against them are pursued.
Liquidators argue the founders should be held accountable for allegedly deepening 3AC’s financial woes in the weeks before its collapse.
