3AC News: Investors are Searching for the Founders of the Failed Three Arrows Capital, Who Have Gone Missing

07/13/2022By: C, Fiona

Abstract

  • According to 3AC’s creditors, Zhu Su and Kyle Davies’ locations are “currently unknown.”
  • From the Friday court filing, the founders have yet to begin “any substantial manner” of cooperation with the liquidation process.

 

According to court records recently filed in New York, the co-founders of the defunct crypto hedge firm Three Arrows Capital appear to be on the run from creditors.Before a hearing scheduled for 9 a.m. ET on Tuesday to address the next steps in the liquidation process, lawyers for creditors said the physical whereabouts of Zhu Su and Kyle Davies, who founded Three Arrows in 2012, are “now unknown.”

They also claim that “in any meaningful fashion” the founders have not begun cooperating with the liquidation process yet, according to documents filed on Friday evening. In court on Monday, lawyers sought that creditors’ names not be revealed.

Requests for feedback from both Zhu and Davies went unanswered.

There were around $10 billion worth of assets under the management of Three Arrows (known as 3AC) as recently as March. As a result of the devaluation of cryptocurrencies and the demise of the terraUSD (UST) stablecoin project, the company filed for Chapter 15 bankruptcy protection from U.S. creditors in the Southern District of New York on July 1, 2018.

In order to repay its creditors, a British Virgin Islands court had already ordered the struggling fund to liquidate.

When 3AC went bankrupt, irate lenders were demanding their money back. As part of the liquidation, a global consultancy firm, Teneo, was brought in to help assess what was remained.

An initial Zoom conversation was held last week between former Credit Suisse traders Zhu and Davies in order to discuss the basics of protecting their investments. For the length of the meeting, neither of the founders turned on their video cameras, and all communication was conducted through lawyers. At the time, their lawyers stated that they “intentionally” cooperated.

The representatives who were there to aid the liquidation sought quick access to 3AC’s offices as well as their bank accounts and digital wallets. According to the complaint, that access was not authorized as of Friday.

3AC’s Singapore headquarters seemed “empty except for a handful of dormant computer screens” when liquidators came there in late June to meet with the fund’s founders.

Unopened mail addressed to Three Arrows “looked to have been slid under the door or pressed against the door” while the office door was locked, according to a court document. Neighbors of the 3AC office said they hadn’t seen anyone there since the beginning of June.

Creditors are still attempting to figure out how much money is left in the bank account.

There is a “serious risk” that 3AC’s assets could disappear “without quick approval to seek discovery” by Teneo’s Russell Crumpler, who was tasked with facilitating the bankruptcy process.

A major percentage of the Debtor’s assets, including cash and digital assets such as cryptocurrencies and non-fungible tokens, are easily transferred, according to Crumpler, who stated as much in his declaration.

There’s a good explanation behind this. An NFT collector and investor has confirmed that one of 3AC’s NFTs was transferred to another crypto wallet.

3AC creditors filed a motion Friday requesting that the court suspend 3AC’s ability to transfer or dispose of any assets. Additionally, lawyers are seeking an order requiring the court to subpoena 3AC’s founders or anybody else who might know something about the company’s assets. That might include financial institutions, such as banks, as well as cryptocurrency exchanges and other parties.

So many institutions have money tied to 3AC’s insolvency that its collapse has already had a significant influence on the broader crypto market.”

Asset resale via the internet As a result of 3AC’s inability to repay the approximately $670 million it borrowed from Voyager Digital, the business filed for Chapter 11 bankruptcy protection. Losses have been incurred by U.S.-based crypto lenders Genesis and BlockFi, as well as the crypto derivatives platform BitMEX and the crypto exchange FTX.