FTX liquidated $1.5B in 3AC assets 2 weeks before hedge fund’s collapse

Newly revealed court documents show that FTX secretly liquidated $1.53 billion in Three Arrows Capital (3AC) assets just two weeks before the hedge fund collapsed in 2022. The disclosure challenged previous narratives that 3AC’s downfall was solely market-driven.

Once valued at over $10 billion, 3AC collapsed in mid-2022 after a series of leveraged directional trades turned sour. The hedge fund had borrowed from over 20 large institutions before the May 2022 crypto crash, which saw Bitcoin (BTC) fall to $16,000.

However, recently-discovered evidence shows that the FTX exchange liquidated $1.53 billion worth of 3AC’s assets just two weeks ahead of the hedge fund’s collapse.

3AC “asked a bankruptcy court to let it increase its claim against FTX from $120 million to $1.53 billion,” according to “Mbottjer,” the pseudonymous co-founder of FTX Creditor, a group FTX creditors and bankruptcy claim buyers.

“3AC says it only recently discovered evidence that FTX liquidated $1.53B of 3AC’s assets just two weeks before 3AC itself went into liquidation, much more than the $120M originally claimed,” they stated.

The crypto hedge fund claims it was never notified of these liquidations due to FTX’s own bankruptcy proceedings. A court ruled that 3AC acted in good faith, allowing it to pursue its full $1.53 billion claim in FTX’s bankruptcy case.

On Dec. 21, 2023, a British Virgin Islands court froze $1.14 billion worth of 3AC co-founder Kyle Davies and Su Zhu’s assets. Teneo has since estimated that 3AC creditors are still owed roughly $3.3 billion following the hedge fund’s collapse in 2022.

Davies claimed that allegations from Teneo — the firm in charge of 3AC’s liquidation — that he and co-founder Su Zhu were “not cooperating” were exaggerated.

Related: US court gives Three Arrows nod to increase its FTX claim to $1.53B

Missing $1.5 billion not enough to avoid 3AC collapse

While the $1.53 billion sum is significantly larger than FTX’s previously disclosed liquidations, it may not have been enough to save 3AC from bankruptcy, according to Nicolai Sondergaard, research analyst at Nansen:

“From what I can see, even if they in 2022 had the additional $1.5 billion they still would not have been able to meet creditor claims/debt repayments.”

“Without being a legal expert, it seems to me that 3AC, while being allowed to pursue a much larger amount, likely won’t get the full $1.53 billion claim. It seems realistic that they will get more, but how much is uncertain,” the analyst added.

Related: 3AC liquidators file $1.3B claim against Terraform Labs

Binance co-founder and former CEO Changpeng Zhao called the revelations an “interesting turn of events.”

“I am curious if FTX had anything to do with the LUNA/UST crash/depeg in May 2022,” Zhao said in a March 14 X post.

The collapse of 3AC occurred a month after that of Terraform Labs’ Terra (LUNC) and TerraClassicUSD (USTC) tokens and shortly before crypto lender Celsius paused all user withdrawals after its native token Celsius (CEL) dropped 90%.

Magazine: ‘Hong Kong’s FTX’ victims win lawsuit, bankers bash stablecoins: Asia Express