Approximately $1.4 billion worth of assets—digital and otherwise—have been frozen by Teneo, the firm handling the liquidation of crypto hedge fund Three Arrows Capital.
The freeze stops 3AC co-founders Su Zhu and Kyle Davies, along with Davies’ wife, Kelly Chen, from accessing the funds in question.
“The worldwide freezing order has been sought in connection with claims that are being pursued by the liquidators that allege, amongst other things, that the Founders should be held responsible for causing 3AC’s position to deteriorate by an amount that is equivalent to the value of the freezing orders sought,” Teneo told Decrypt in a statement.
Teneo is the firm that’s been overseeing the liquidation of 3AC’s assets in an effort to repay $3.5 billion to its creditors. Three Arrows Capital was ordered to liquidate in June 2022. It’s been a long, “intensive effort” trying to get Zhu and Davies to cooperate, said Teneo.
The law firm has asked a judge to order the co-founders to cooperate several times, claiming that they were “withholding information.” The co-founders have also been pursued by U.S. authorities. In August, Davies announced that he renounced his American citizenship when he became a Singaporean resident in 2017—and so didn’t have to answer to U.S. courts.
The company demanded roughly the same amount of money from the founder in June. A source familiar with the matter told Bloomberg at the time that Teneo had met with 3AC’s creditors and been made aware of allegations that the co-founders continued taking on leverage in May and June 2022 despite the firm being “already insolvent.”
Teneo has been able to secure some company assets, including $35.6 million cash, a $30 million yacht, and some NFTs. But the value of those assets pales in comparison to the $3.5 billion that was missing from Three Arrows Capital's balance sheet.
Overexposure to Terra
The firm went under due to overexposure to the algorithmic stablecoin protocol, Terra, which entered an inflationary death spiral in May 2022. During an interview last year, Zhu and Davies said themselves they had bet too big on TerraUSD and were close to Terra co-founder Do Kwon.
Kwon fled to Montenegro before being arrested and found guilty for trying to leave the country with a fake passport. He’s now fighting extradition to face charges in the United States.
Zhu and Davies went quiet shortly after 3AC collapsed, saying they’d received death threats. But since then, they’ve launched a new exchange—OPNX—for traders to swap bankruptcy claims for other now-defunct crypto companies, like FTX.
The fallout from Three Arrows Capital's collapse of Terra and Three Arrows Capital caused widespread market contagion throughout the crypto industry in 2022. Overexposure to the hedge fund led to the collapse of crypto lending companies BlockFi, Voyager, and Celisus—among other crypto startups—which, in turn, led to further damage for the market. It wasn’t long before market participants, as well as regulators and law enforcement officials, began pointing the finger at Zhu, Davies, and Kwon.
BlockFi, Voyager, and Celsius have all since begun repaying customers or had plans to exit bankruptcy approved by the courts—but they’re all still in the process of trying to recoup debts owed to them by 3AC.
Edited by Guillermo Jimenez.