The saga of bankrupt Singapore-based cryptocurrency hedge fund Three Arrows Capital (3AC) continues to unfold, as a court in the British Virgin Islands has this week frozen more than a billion dollars of co-founders Kyle Davies and Su Zhu’s assets. The order prevents the pair, along with Davies’ wife, Kelly Chen, from transferring or selling assets worth up to $1.14 billion, according to Bloomberg. 3AC’s liquidator, Teneo, also shared that the founders are subject to a domestic freezing order from a Singapore Court.
“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.”
3AC was founded by Kyle Davies and Su Zhu in 2012, but since the Terraform Labs’ crash in early 2022, the hedge fund has faced a severe liquidity crisis. The company operated out of Singapore but filed for bankruptcy in the British Virgin Islands and was liquidated in June 2022 by a local court order, with Teneo appointed as liquidator. In July 2022, Three Arrows also filed for Chapter 15 bankruptcy to protect its U.S. assets from creditors. 3AC’s collapse was one of the most considerable hedge-fund trading losses of all time. According to bankruptcy filings, the company faces $3.5 billion in creditor claims. The company’s fall triggered a downward spiral in the crypto market, hitting many crypto investors and companies, including Voyager Digital, Celsius, Genesis, BlockFi, FTX and others. Now, those companies are navigating their own bankruptcy proceedings, trying to settle mutual claims.
This April, Su Zhu and Kyle Davies started another cryptocurrency-related venture, with headquarters in Hong Kong yet registered in Seychelles (allegedly due to the fact that both founders have been barred from regulated activities in Singapore for 9 years). OPNX allows the trading of bankruptcy claims and the use of these as portfolio margins. However, only FTX claims are available for trading at the time of writing. Ironically, 3AC claims may also be traded on the platform in the future.
The founders’ previous reputation predictably led to controversy and some financial troubles for the project in its early stages. The third founder, Mark Lamb, former CEO of now-defunct CoinFLEX (from which OPNX was built), faced lawsuits for unauthorised 'rebranding' of CoinFLEX and misappropriation of its assets. The exchange offers its own native tokens, OX, currently trading at $0.012, and oUSD, OPNX's internal credit and trading currency.
"I’m getting early 3AC vibes all over again. Nothing compares to the energy of a startup," - Davies on OPNX.
According to court liquidation papers and Teneo’s statements, Davies and Zhu have not been cooperating in the liquidation process of Three Arrows Capital. Reportedly, they opted to travel in Bali, Indonesia, instead of spending hours in stuffy courtrooms. Zhu then returned to Singapore, where he was arrested this September while trying to leave the country. He was sentenced to four months in prison for failing to cooperate with 3AC’s liquidators (but continues to post on X, supporting OX token price). Davies' whereabouts remain unknown, but he is subject to the same committal order as Zhu.
It is unclear if the freezing order will ultimately be effective, but the attempt to hold the founders accountable for the consequences of their risky business practices is to be expected, especially taking into account that other disgraced crypto moguls, including SBF, CZ and Do Kwon, have recently faced much more severe punishments for similar mistakes.
