The lawsuit between Three Arrows Capital (3AC) and FTX has taken a new turn as a U.S. court allowed 3AC to expand its compensation request from 120 million USD to 1.53 billion USD. This is a significant development in the legal battle between two of the names that once shook the crypto market.
Does 3AC really have the right to reclaim this huge sum, or is this just a last-ditch effort to salvage assets after the historic collapse?
U.S. Court Greenlights 3AC
On Thursday, U.S. Bankruptcy Judge John T. Dorsey ruled allowing the liquidation team of #3AC to expand its compensation request against FTX to 1.53 billion USD.
This has dismissed objections from FTX, which argued that this request is too late and unfair. FTX argued that increasing the compensation request value too much could disrupt the bankruptcy process and introduce new legal arguments not present in the original filing.
However, the court disagreed with FTX's argument. In his ruling, Judge Dorsey stated that 3AC's delay in filing the amended complaint was caused by FTX itself, as the platform failed to provide relevant documentation in a timely manner.
From 120 Million USD to 1.53 Billion USD: Is 3AC Too Greedy?
3AC, once one of the largest cryptocurrency investment funds with over 3 billion USD in assets, collapsed in June 2022 after the crypto market plummeted.
This fund, founded by Kyle Davies and Su Zhu, made significant bets on many digital assets, including the stablecoin TerraUSD – one of the largest collapses in crypto history in May 2022.
As a result, 3AC lost billions of USD and fell into bankruptcy, triggering a domino effect that harmed many companies in the industry like Voyager Digital and BlockFi.
According to court records, on June 12, 2022, 3AC had 1.53 billion USD on the exchange #FTX . Just two days later, FTX liquidated these assets to recover the 1.3 billion USD debt that 3AC owed.
Initially, in June 2023, 3AC only requested compensation of 120 million USD during the bankruptcy proceedings of FTX. However, later, the liquidation fund of 3AC decided to expand the scope of litigation, accusing FTX:
Breach of contract
Unjust enrichment
Breach of fiduciary duty
This has resulted in the total amount of compensation requested by 3AC increasing more than 12 times, to 1.53 billion USD.
Ruling Complicates Matters for FTX
FTX is currently in bankruptcy proceedings under the management of John Ray III, the replacement CEO for Sam Bankman-Fried after the exchange collapsed at the end of 2022.
FTX strongly opposes the expansion of 3AC's compensation request, arguing that this will complicate their bankruptcy proceedings and affect other creditors.
However, the court dismissed this argument, affirming that FTX had been fully informed about the possibility of 3AC increasing its compensation request beforehand.
Access to Assets Blocked: The Price That 3AC Founders Have to Pay
This is not the first time 3AC has achieved a notable legal victory. In December 2023, a court in the British Virgin Islands ordered the freezing of 1.4 billion USD in assets related to 3AC.
This order blocks access to the assets of Su Zhu, Kyle Davies, and Davies' wife, Kelly Chen, while allegations against them continue to be processed.
3AC's liquidators argue that the fund's founders must be held accountable for worsening 3AC's financial situation just before its collapse.
Conclusion: Who is the Real Winner?
The latest ruling from the U.S. court is a significant step forward for 3AC's liquidation team, enabling them to pursue the 1.53 billion USD from FTX.
However, there are still many risks, and nothing guarantees that 3AC will actually recover this money. FTX is still undergoing bankruptcy, and other creditors are also vying for the remaining assets of this exchange.
Is this a turning point helping 3AC recover part of the damages, or just a futile effort in a high-risk legal battle?