We do the research, you get the alpha!
Two key U.S. regulators are reportedly investigating the bankrupt crypto-focused hedge fund Three Arrows Capital (3AC).
According to anonymous sources reported by Bloomberg, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are now looking into whether the fund “violated rules by misleading investors about the strength of its balance sheet and not registering with the agencies.”
The Singapore-based fund, which began actively trading cryptocurrencies in 2017, was one of the world’s largest crypto funds before filing Chapter 15 bankruptcy proceedings on July 1, claiming that it owed $3.5 billion to creditors following its collapse.
Blockchain analytics firm Nansen estimated that it had around $10 billion in assets under management in March 2022.
3AC’s collapse has been attributed to exposure to Terra’s luna (LUNA) and terraUSD (UST) tokens, as well as to Grayscale’s Bitcoin Trust (GBTC).
The price of Terra’s token’s crumbled in May, causing unheralded financial woes not just for 3AC but for other major players in the crypto space such as now-bankrupt lenders Celsius and Voyager.
It’s not just U.S. regulators that are busy delving into Three Arrows’ finances either; the firm is already facing increased scrutiny in Singapore.
A filing by the country’s financial watchdog the Monetary Authority of Singapore (MAS) alleged that the hedge fund may have failed to ensure that information provided to it was not false or misleading, failed to notify it of any changes to directorships and shareholdings, as well as committing a prolonged breach of its Assets Under Management (AUM threshold.
Three Arrows Capital liquidation
The liquidation of Three Arrows assets is already well underway.
In October, a collection of expensive NFTs was moved into the possession of Teneo, the business advisory firm leading the Chapter 15 bankruptcy process, which included pieces from highly valued collections such as Yuga Labs’s CryptoPunks.
The investigation is complicated by the fact that the physical location 3AC’s founders Zhu Su and Kyle Davies, who founded the fund in 2012 after studying together at Columbia University, is currently unknown.
Their unavailability forced a judge in Singapore to issue subpoenas via Twitter and email to the fund’s founders.
It appears the SEC may have its hands full when it comes to crypto bankruptcy proceedings as of late.