July 18, 2024


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3AC founders moved money out of troubled hedge fund, allege liquidators

6 min read


Court filings submitted by the joint liquidators of Three Arrows Capital Ltd. (3AC) allege its founders moved funds out of the troubled cryptocurrency hedge fund as creditors tried to salvage their money amid a contagion that roiled digital asset markets. 

Citing on-chain data, joint liquidators Christopher Farmer and Russell Crumpler, alleged 3AC transferred US$30.7 million in USDC and US$900,000 in USDT on June 14 into the wallet linked to Tai Ping Shan (TPS) Capital, a firm controlled by the founders Su Zhu and Kyle Davies.

“It was unclear where those funds subsequently went,” the two said in submissions made to the High Court of Singapore. The two liquidators were appointed by a court in the British Virgin Islands (BVI) to protect the interests of creditors.

Forkast‘s request for a comment to Su Zhu and Kyle Davis, and their Singapore-based counsel Advocatus Law LLP went unanswered at the time of publication. Solitaire LLP, 3AC’s counsel, also did not respond to a request for a comment.

The information, if true, highlights the intertwined nature of some of the biggest participants in the cryptocurrency industry and the resulting contagion caused by a lack of oversight over cross-borrowing and lending among themselves. 

See related article: Contagion risk from Three Arrows Capital weighs on Bitcoin, crypto   

The troubles at 3AC, which reportedly managed as much as US$10 billion in assets in March, were followed by the bankruptcy declaration of Voyager Digital Ltd. and Celsius Network LLC. Both were creditors to 3AC, according to the bankruptcy filings, with 3AC owing Voyager around US$650 million and another US$75.3 million to Celsius.

In another transaction on June 16, US$10.9 million worth of USDT was sent from 3AC to an unknown address which had not received any funds in the past two years, court filings showed. The funds were then transferred to another unknown wallet. 

Additionally, the court documents state that 3AC withdrew 14,900 million Ether tokens worth US$17 million from FTX, and sent 10,140 Ether to a wallet connected to Aave. “It was unclear why the Company continued to trade cryptocurrency rather than respond to margin calls from its lenders,” the court documents said. 

The documents also said that while some of these transactions could have been the result of margin calls on 3AC’s loans, in the absence of specific data related to margin calls and the lack of transparency, creditors had no way of knowing the purpose of such transactions.

“In the face of the transactions involving the Company’s assets which creditors could not be certain of the purpose of, the conduct of Su Zhu and Kyle Davies (the founders of the Company and directors (up to the time of the Company’s Liquidation Application)) only served to heighten the Company’s creditors’ concerns,” the document said.

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All in the family

The liquidators’ affidavit showed a BVI-based company, Skew Investments Ltd., owned 52% of the Cayman Island-registered TPS Capital.

Su Zhu, cofounder and chief executive officer of 3AC, owned a 42.07% stake in Skew Investments with Kelly Kaili Chen, the wife of 3AC cofounder Kyle Davies, controlling another 39.78%. Another 18.15% of the equity was owned by others who didn’t control more than 10% of TPS’ shares.

The shareholding pattern counters TPS Capital’s attempt to distance itself from 3AC and its founders.

“TPS is an independent legal entity and its operations are separate and distinct from those of 3AC,” the digital assets trading firm said on its verified Twitter handle on July 7. The crypto fund was a shareholder for “a very brief period” immediately following the company’s incorporation in December 2020, TPS said. 

“But it has not held any shares in TPS since January 2021,” although Zhu and Davies maintain an indirect equity interest, the trading firm said. “However, they are passive investors and do not run or have any direct control over TPS’s day-to-day operations.”

The liquidators’ submissions showed the fund managing 3AC and TPS Capital had common directors even as the crypto hedge fund guaranteed TPS’ loans that are now in default. 

On June 20, Juntao Zhu, cofounder and chief executive officer of Hodlnaut Pte. Ltd. said on his verified Twitter handle that the firm was lucky to have relatively stringent onboarding requirements. The firm is a cryptocurrency interest-earning platform based in Singapore.

Despite working with 3AC previously, Hodlnaut required the firm to deposit collateral against borrowing, Hodlnaut’s Zhu said. The firm also asked 3AC to provide financial statements which were never submitted, he added. 

In the screenshot of the conversation between Hodlnaut’s Zhu and Davies, a person by the name of Edward from TPS is seen asking to borrow Bitcoin, Ether and stablecoins on an uncollateralized basis from the Singapore-based interest-earning platform. 

Forkast’s review of TPS’ employees showed a certain Edward Z as the Head of Treasury at the company. It wasn’t immediately known if the two were the same person. A request for a comment by Forkast via LinkedIn went unanswered.

See related article: Three Arrows, Voyager failures raise questions of who is next in crypto fall from grace   

Meanwhile, reporting by Coindesk showed Paul Muspratt, managing director of West Bay Global, Steven Sokohl, a West Bay employee, and Yi Long Fund as directors of TPS Capital. The liquidators’ court filings showed all three individuals also serving as directors of ThreeAC Ltd., the fund managing all of 3AC’s investments. 

TPS also claimed to be the official over-the-counter trading desk of 3AC on its verified LinkedIn page. The page has since been amended.

Apart from the ties in ownership and personnel, a review of the demand letters attached in the court filings by Forkast showed that 3AC acted as a guarantor for TPS Capital in loans where it defaulted. 

A demand letter from Seychelles-based crypto fund Mirana Corp. showed TPS Capital defaulted on a loan secured on June 9, for which 3AC was responsible as guarantor. 

When the price of Bitcoin dropped by more than 10% since the loan was made out, TPS Capital was required to add more collateral, the letter indicated. But both TPS Capital and 3AC failed to pay additional collateral and the loan agreement was terminated on June 15. 

Mirana Corp. sold over US$37 million worth of locked collateral in the event of the default and demanded another US$13.06 million from 3AC towards fees and interest. 

Similarly, 3AC also acted as guarantor for TPS Capital for a loan of 20 million USDC from Arrakis Capital on April 28. TPS Capital and 3AC both failed to answer margin calls on the loan and the agreement was terminated with TPS Capital and 3AC asked to repay the US$20 million and accrued interest. 

Meanwhile, 3AC’s counsel has advised the crypto hedge fund to “convert” any assets it has to Singapore dollars, and hold that amount in a Singapore bank account, “presumably in order to help shield those assets from creditors,” the liquidators said in the court filings.


According to the liquidators, Zhu and Davies did not cooperate with the liquidation process. And their conduct “only served to heighten” the creditors’ concerns, the court filings said. 

The court documents also indicate that Zhu and Davies made a down-payment on a US$50 million yacht amid attempts by creditors and liquidators to reach them. The yacht was to be delivered in Italy in the next two months, the court documents stated. 

The documents also highlighted bungalows owned by the cofounders and their spouses but stated that “At this stage, it is unclear how the assets of the Company were dealt with by its founders and whether the assets of the Company were used toward the purchases that they have been making.”  

3AC is scheduled for a pre-trial conference on July 26 regarding the lawsuit by Mirana. 

In the U.S., 3AC filed for Chapter 15 bankruptcy protection, a move likely made to shield its assets from creditors there. The case is scheduled for a hearing on July 28. 3AC liquidators are also trying to urge the Singapore court to recognize the British Virgin Islands liquidation order.


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