Three Arrows Capital Expands Claim Against FTX to $1.53 Billion
Three Arrows Capital (3AC) has obtained approval from the US bankruptcy court to increase its claim against FTX from $120 million to $1.53 billion, complicating the exchange’s restructuring process.
The court dismissed FTX’s objections, stating that the delays were due to the exchange’s intentional withholding of information, preventing 3AC from assessing the extent of its claim earlier.
The new claim includes allegations of breach of contract and unjust enrichment, while FTX is concerned that this demand will compromise its creditor reimbursement plan.
A Blow to FTX’s Restructuring
The US bankruptcy court in Delaware has ruled in favor of Three Arrows Capital (3AC), allowing the bankrupt crypto investment fund to expand its claim against FTX from $120 million to $1.53 billion. This decision represents a major setback for the exchange’s restructuring process, which disputed the claim, arguing that it was untimely and threatened its reorganization plan.
Delays Attributed to FTX
Despite objections from FTX, the court determined that 3AC’s liquidators had filed their claim in a timely manner. The judge highlighted that the delay in the process was mainly due to difficulties faced by 3AC in accessing documents held by FTX. According to the court’s findings, FTX debtors deliberately delayed sharing the necessary information, preventing 3AC from quantifying the extent of its claim earlier.
“The evidence suggests that the liquidators have made diligent efforts to obtain this information, but despite having complete possession of the data, the debtors repeatedly delayed it.” – Excerpt from the judgment
An Expanded Claim for Damages and Contractual Breaches
Initially, 3AC had filed a $120 million claim in June 2023. However, the new claim now covers a wide range of grievances, including allegations of breach of contract, unjust enrichment, breach of fiduciary duty, and restitution of funds. This radical expansion of the requested amount places FTX in an even more precarious position as it seeks to compensate its creditors.
FTX Aims to Minimize the Impact on Its Reimbursement Plan
FTX, which has recently begun distributing initial reimbursements to its creditors, believes that this new claim jeopardizes its restructuring plan. The bankruptcy team at the exchange argued that 3AC’s “excessive” demand creates an imbalance in the compensation process and should have been known earlier to be included in negotiations.
However, the court rejected this argument, stating that FTX did not provide tangible evidence showing that the new claim would cause irreparable harm. Additionally, the decision emphasizes that 3AC’s initial claim already mentioned the possibility of future extensions.
The Legacy of a Flawed Ecosystem
Three Arrows Capital, founded by Su Zhu and Kyle Davies, had established itself as one of the most influential crypto hedge funds before collapsing in 2022 following the implosion of the Terra-Luna project. The post-bankruptcy investigation revealed significant risk management flaws and excessive exposure to volatile assets.
With this new court decision, the specter of the past haunts FTX as it continues to recover from one of the largest collapses in cryptocurrency history.
