Crypto Hedge Fund Three Arrows Ordered by Court to Liquidate
The order follows creditor lawsuits over the crypto hedge fund’s failure to repay loans
A British Virgin Islands court ordered the liquidation of Three Arrows Capital Ltd. after creditors sued the cryptocurrency hedge fund for failure to repay debts.
Nichol Yeo, a partner at law firm Solitaire LLP, said Three Arrows Capital is considering its options and seeking legal advice in the British Virgin Islands.
Three Arrows Capital suffered losses in recent weeks due to a punishing decline in the value of cryptocurrencies. Twin forces have hit the digital asset ecosystem: a broad market selloff sparked by the Federal Reserve’s interest-rate increases and concerns over individual crypto coins and firms. Bitcoin’s dollar value has fallen by more than a third this month.
Two executives of Global advisory firm Teneo, Russell Crumpler and Christopher Farmer, were appointed by the British Virgin Islands to oversee the liquidation of assets and safeguard them, according to people familiar with the proceedings. The firm isn’t representing Three Arrows or the creditors.
Creditors to whom Three Arrows owes debts will be able to file their claims online, the people said. The process for debtors to reclaim their assets is likely to be lengthy, they said, noting the liquidation order would mark the start of that process.
Former schoolmates and Wall Street traders Su Zhu and Kyle Davies started Three Arrows nearly a decade ago. It had roughly $3 billion in assets under management in April, just before crypto markets cratered, Mr. Davies told The Wall Street Journal earlier this month.
Three Arrows Capital invested in Luna, “Lido Staked ether” tokens and Grayscale Bitcoin Trust. Luna collapsed last month when its sister cryptocurrency TerraUSD, failed to maintain its value against the dollar, sending ripples through the crypto universe. The two coins together lost more than $60 billion in value.
Hedge funds such as Three Arrows invested in Grayscale to arbitrage the difference between the value of the trust and bitcoin, whose value it tried to mimic. The Grayscale trade suffered as the trust faced competition from investment products created for everyday investors. Grayscale Bitcoin Trust, which traded at a premium to bitcoin in the past, was trading at a 29% discount to bitcoin’s price as of Monday, according to YCharts data.
Several creditors have sued over the firm’s failure to repay loans. Crypto broker Voyager Digital Ltd. earlier this week said that Three Arrows had defaulted for failing to make loan payments tied to large bets in the digital-currency realm. The loan, which included 15,250 bitcoin and $350 million in USD Coin, amounted to about $656 million based on bitcoin’s current price. Voyager Digital said it intends to recover its assets and is discussing legal remedies with its advisers.
The liquidation order was reported earlier by Sky News.
Three Arrows Capital operated as a regulated fund manager in Singapore until last year, when it shifted its domicile to the British Virgin Islands, part of a plan to relocate its operations to Dubai.