3AC accused of using client funds to cover margin calls

The head of trading at 8 Blocks Capital, Danny Yuan, said that the hedge fund Three Arrows Capital (3AC) used $1 million of funds from a Hong Kong-based company on accounts he managed to cover margin calls.

9) Then our traders noticed that there were a few rumors circulating on Twitter speculating on 3AC’s insolvency. Since we were directly involved, we felt the need to tell the world about what had occurred and gauge the extent of the 3AC contagion.

— Danny (@Danny8BC) June 16, 2022

“24 hours ago, our funds-monitoring script detected that about $1 million had disappeared from our accounts. We contacted Kyle Davis [co-founder of 3AC] and the operations team on Telegram about the disappearance — we did not receive any responses. We tried to call them — they were online but did not answer,” Yuan wrote.

According to him, 8 Blocks Capital has been cooperating with 3AC since November 2020. Under the agreement signed then, the firm uses the hedge fund’s trading accounts and pays a fee in return.

“So our agreement with them was this: we exit when we want. 100% PNL belongs to us. They must never commingle our funds without permission (this increases the risk of liquidating our positions); in return, we pay them a fee for services,” he explained.

Against the backdrop of the crypto market crash, 8 Blocks Capital required funds to sustain positions on exchanges. The 3AC operations team approved a withdrawal request.

With the ongoing correction, the firm filed another request for a “big withdrawal,” but did not receive a response, Yuan said. He also noted that the hedge fund was actively trading with high leverage, which led to a barrage of margin calls.

12) However they still have assets on a number of platforms (you know who you are). We call for you to freeze their assets so that those who 3AC owes can be paid back in the future after legal proceedings.

— Danny (@Danny8BC) June 16, 2022

“We learned that they were leveraged across platforms and were receiving margin calls. Instead of responding to them, they went quiet. Platforms had no choice but to liquidate their positions, which led to further market declines,” he wrote.

Yuan stressed that 3AC did not misuse client funds for speculation, but certainly used them to meet margin requirements. The specialist urged platforms where the fund’s assets remain to be frozen so that clients can receive compensation.

ForkLog sought comment from 3AC, but did not receive a prompt response.

Earlier online there was information about the hedge fund’s insolvency. The structure actively used protocols such as Aave, which, against the backdrop of the discount on Lido’s sETH tokens and the crypto-market downturn, led to large liquidations of its positions.

The Block editor Frank Chaparro said that 3AC’s positions were also forcibly liquidated by a top-tier exchange, not only by decentralized lenders. According to him, the hedge fund’s management never contacted its counterparties.

Also they have been liquidated by a top tier exchange in addition to the liquidations by several lenders

— Frank Chaparro (@fintechfrank) June 16, 2022

Back in February 2022, Three Arrows Capital led the LUNA token sale from LFG for $1 billion. In May, the Terra ecosystem collapsed, and its native cryptocurrency largely lost its value.