Three Arrows Capital Liquidators Elevate FTX Claim by $1.41 Billion Amid Legal Developments

• The US Bankruptcy Court’s recent ruling allows Three Arrows Capital’s liquidators to substantially raise their claims against FTX, marking a pivotal moment in the ongoing crypto saga.

• This legal development highlights the complex web of financial transactions and allegations among key players in the crypto space, showcasing the far-reaching implications of crypto bankruptcies.

• “The evidence makes clear that the description of the facts contained in the Original POC was based on the limited information that the Liquidators had available to them at that time,” noted Judge John T. Dorsey during the proceedings.

This article delves into the recent ruling by the US Bankruptcy Court allowing 3AC’s claims against FTX to increase dramatically, shedding light on the complex crypto bankruptcy landscape.

3AC’s Liquidators Secure Major Victory in FTX Case

The ruling stems from a motion filed by 3AC’s liquidators, Russell Crumpler and Christopher Farmer. For context, the liquidators initially filed their proof of claim in June 2023.

It sought to recover funds related to preference, conversion, and other avoidance actions tied to a $120 million loan allegedly owed by 3AC to FTX. Nonetheless, after further investigation, the liquidators determined that 3AC’s dealings with FTX were far more extensive.

“The information obtained by the Liquidators in the year since they filed their Original POC led them to the new conclusion that just two weeks before the commencement of the 3AC Liquidation, the $1.53 billion of assets that 3AC had on the FTX platform were liquidated to satisfy $1.3 billion in liabilities to FTX,” the document read.

Furthermore, according to court documents, the liquidators faced substantial obstacles during their investigation. This included a lack of proper records from 3AC. In addition, the cooperation was minimal from the company’s founders, Kyle Davies and Su Zhu. 

Delays in receiving critical documents and data compounded these challenges. Much of the key information was only made available in late 2023 and early 2024. This came after FTX itself had filed for bankruptcy in November 2022. The exchange collapsed amid allegations of fraud and mismanagement under former CEO Sam Bankman-Fried.

This delay prevented the liquidators from fully understanding the scope of 3AC’s transactions with FTX until after the original claims deadline had passed.

“The evidence makes clear that the description of the facts contained in the Original POC was based on the limited information that the Liquidators had available to them at that time,” Judge John T. Dorsey wrote.

Meanwhile, FTX objected to the motion. They argued that the amendment was filed too late and expanded the scope of the claims, violating the bankruptcy process. The debtors claimed that the original proof of claim did not provide sufficient notice of the nature or the amount of the newly proposed claims.

However, the court dismissed FTX’s objections, siding with 3AC’s liquidators and approving the expanded claim. Additionally, the court found that much of the delay in filing the amended claim was attributable to FTX’s failure to provide the necessary documents to the liquidators promptly.

“Having considered all the evidence presented, I find that the balance of the equities is in favor of allowing the Amended POC,” Judge Dorsey noted.

This latest development occurs alongside Bankman-Fried’s ongoing efforts to secure a pardon from President Donald Trump. To strengthen his case, Bankman-Fried has sought to align himself with right-wing figures.

He recently appeared on Tucker Carlson’s show and has reportedly consulted with a lawyer linked to Trump. Despite Trump’s history of pardons, skepticism remains due to SBF’s lack of support in the crypto community.

Implications for the Crypto Community

The ruling not only represents a significant shift in the 3AC vs. FTX case but also sends ripples through the broader cryptocurrency landscape. As exchanges and investors grapple with ongoing market volatility and regulatory scrutiny, this case raises crucial questions about accountability and transparency in crypto dealings.

Looking Ahead

In light of this ruling, stakeholders in the crypto space must remain vigilant. The case illustrates the potential for significant financial liabilities and exposes the importance of maintaining accurate records and fostering transparency. As the legal processes unfold, ongoing developments are likely to set precedents influencing future interactions among crypto enterprises.

Conclusion

The court’s decision to allow the amendment of 3AC’s claims against FTX marks a critical juncture in this high-profile bankruptcy case. With Judge Dorsey’s ruling emphasizing the complexities of the situation, all eyes will be on the implications for both 3AC and the broader cryptocurrency market. As resolutions unfold, key insights into market practices and regulatory landscapes may emerge, providing critical lessons for industry participants.