A major development occurred in the U.S. bankruptcy court as Chief Judge John Dorsey ruled in favor of liquidators representing the defunct crypto hedge fund, Three Arrows Capital (3AC). The court has authorized an increase in their claim against the collapsed crypto exchange, FTX, from $120 million to an astounding $1.53 billion.
The liquidators have been diligently battling to recover funds held by FTX since they initially filed their claim in June 2023. Judge Dorsey dismissed arguments from FTX’s debtors, who insisted that the amended proof of claim (POC) was made too late and disrupted the ongoing bankruptcy proceedings. In his March 13 ruling, he noted that the liquidators had made sufficient notifications regarding their claim and the potential for amendment after a thorough analysis of the available data.
Judge Dorsey stated, “The evidence suggests that the delay in filing the Amended Proof of Claim was, in large part, caused by the Debtors themselves.” He emphasized that the liquidators had shown diligence in their efforts to obtain pertinent information from FTX. The judge pointed out that FTX’s consistent delay in providing crucial documentation contributed significantly to the prolonged process.
Initially, the liquidators lodged a $120 million claim in June 2023, later revising and expanding it in November 2024. Their allegations included instances of breach of contract, unjust enrichment, and breach of fiduciary duty. They assert that FTX liquidated $1.53 billion in hedge fund assets in 2022 to tackle $1.33 billion in liabilities, a transaction they argue was avoidable and detrimental to 3AC’s creditors.
Despite their objections, FTX debtors contended that the original POC didn’t adequately clarify the nature and amount being claimed. They argued that the amendment came too late and should be dismissed. However, Dorsey’s ruling is a significant triumph for the liquidators.
Prior to its downfall in June 2022, Three Arrows Capital was a leading player in the crypto hedge fund sector, boasting assets exceeding $3 billion. The liquidators are also pursuing claims against Terraform Labs in a related $1.3 billion claim within Terra’s bankruptcy case.
Meanwhile, FTX, which declared bankruptcy in November 2022, has been active in its recovery efforts. In November late last year, they initiated multiple lawsuits against entities including SkyBridge Capital and its founder, Anthony Scaramucci, seeking to reclaim funds misappropriated by former FTX CEO, Sam Bankman-Fried (SBF), along with other recovery actions.
This ongoing legal saga emphasizes the complexities and contentious nature of bankruptcy proceedings in the rapidly evolving cryptocurrency landscape. As more details unfold, stakeholders within the crypto community are keeping a close watch on the ramifications of this ruling, not only for Three Arrows Capital but also for the underlying structures of the crypto market.
