3AC Liquidators Demand $1.3 Billion from Terraform Labs

The bankruptcy managers of the cryptocurrency hedge fund Three Arrows Capital (3AC) have demanded at least $1.3 billion from Terraform Labs, the entity behind the Terra ecosystem, according to Bloomberg.

Court documents reveal that the company “encouraged” 3AC to purchase native LUNA tokens and the algorithmic stablecoin TerraUSD (UST), manipulating markets to “artificially inflate asset prices.”

One of the most renowned hedge funds in the industry collapsed shortly after the downfall of Terra and several other major crypto businesses in 2022.

The British Virgin Islands court appointed partners from the consulting firm Teneo as 3AC’s liquidators. In June 2023, they filed a lawsuit against the fund’s founders, Su Zhu and Kyle Davies, demanding the return of $1.3 billion. The total claims from the structure’s creditors were estimated at $3.5 billion.

According to the liquidators, 3AC acquired LUNA worth $190 million at the beginning of 2022 as part of a $1 billion deal involving several venture companies.

By the end of April, the fund held project tokens valued at approximately $462 million, but by May 14, their value had plummeted to just over $2700. Amid the market crash triggered by Terra’s collapse, 3AC lost approximately $858 million in other digital assets during the same period.

In April 2024, a U.S. court found Terraform Labs and its co-founder Do Kwon guilty of deceiving investors and securities fraud.

Authorities in Montenegro arrested the entrepreneur in March 2023 at the request of law enforcement agencies in the U.S., Singapore, and South Korea. Kwon served a prison sentence in the country for document forgery while attempting to fly to Dubai, but the saga of his extradition continues at the time of writing.

Bloomberg noted that it remains unclear how much the 3AC liquidators will be able to recover from Terraform Labs.

In June 2024, the company agreed to pay $4.47 billion as part of a settlement with the U.S. Securities and Exchange Commission.