U.S. Court Approves Three Arrows Capital’s $1.53B Claim Against FTX

• The U.S. Bankruptcy Court approved 3AC’s expanded $1.53 billion claim against FTX.
• FTX debtors objected, but the court dismissed their claims as invalid.

A U.S. bankruptcy court has approved liquidators of defunct hedge fund Three Arrows Capital (3AC) to expand their claim against FTX to $1.53 billion. The ruling, issued by Judge John T. Dorsey of the U.S. Bankruptcy Court for the District of Delaware, dismissed objections from FTX’s debtors and allows 3AC to seek a larger recovery.

The court determined that 3AC’s liquidators had provided adequate notice of their claims. Judge Dorsey noted that delays in filing were primarily due to FTX’s failure to provide key financial records in time

FTX’s debtors, led by CEO John Ray III, opposed the expansion. They argued that the amendment introduced new legal claims and significantly increased the amount sought. However, the court ruled that 3AC’s original filing had already put FTX on notice about potential claims, rendering the objections invalid.

3AC’s Collapse and Legal Battles Intensify

Three Arrows Capital, once a major crypto hedge fund, collapsed in June 2022 after heavy losses in the crypto market. Founders Kyle Davies and Su Zhu had taken leveraged positions in digital assets, including TerraUSD, which lost almost all its value in May 2022. The firm’s failure triggered a chain reaction, leading to the collapse of lenders like Voyager Digital and BlockFi.

Court documents reveal that as of June 12, 2022, 3AC held $1.53 billion in assets on FTX. Over the next two days, FTX liquidated those funds to recover a $1.3 billion debt. Initially, 3AC’s liquidators filed a $120 million claim in FTX’s bankruptcy case in June 2023. They later revised the claim, citing breach of contract, unjust enrichment, and breach of fiduciary duty.

This latest ruling adds to ongoing legal battles involving 3AC’s founders. In December 2023, a British Virgin Islands court froze $1.4 billion in assets linked to Davies, Zhu, and Zhu’s wife, Kelly Chen. The freeze prevents them from accessing funds while claims against them proceed. Liquidators allege that the founders contributed to 3AC’s downfall by mismanaging funds in the weeks before its collapse

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