US SEC And CFTC To Probe Bankrupt Crypto Hedge Fund Three Arrows Capital
Until recently, 3AC was one of the leading crypto hedge funds in the world. However, the company filed for bankruptcy in July after the collapse of the Terra ecosystem and a broad sell-off of its digital assets.
Now, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are investigating whether the hedge fund broke any rules by misleading investors about its balance sheet strength and failing to register with the appropriate regulators.
However, the investigation will likely result in monetary fines and other consequences for the firm and its executives. Meanwhile, the whereabouts of both 3AC founders, Su Zhu and Kyle Davies, remain unknown.
A Fall From Grace
Before having its liquidity issues, 3AC had a few billion dollars under management, making the firm one of the most successful hedge funds in the world. 3AC also received loans from international firms and was a venture capitalist in some of the industry’s most famous startups.
However, huge losses sustained from the crash of the Terra stablecoin (TerraUSD) created a huge dent in the company’s finances. 3AC finally declared bankruptcy following failure to pay margin calls from its lenders as the effects of the Terra crash spread through the broader crypto market.
Tens of millions of dollars worth of the fund’s assets have been seized by Teneo, a Singapore high court-appointed liquidator, to oversee the seizure of 3AC assets. 3AC had an office in Singapore until at least early May. As a result of losing its investments in the TerraUSD, 3AC became indebted to cryptocurrency lenders Voyager Digital and Celsius Network.
Teneo, however, asserts that the founders of 3AC haven’t adequately cooperated with the dissolution. In an extraordinary turn, Teneo requested a US judge for authorization to serve subpoenas to Zhu and Davies through their email and Twitter accounts. Teneo believed this would be more effective since conventional tactics didn’t work.
The SEC and CFTC are not the only regulatory bodies investigating 3AC. The Monetary Authority of Singapore (MAS) penalized the company on June 30 for allegedly providing false information and exceeding the limit of assets under its management.
According to court documents published earlier this month, the fund’s liquidators were reportedly granted permission to repatriate some of the firm’s assets from Singapore to the British Virgin Islands.
Bankrupt Celsius Network Under Scrutiny
US regulators are also looking closely into the crypto lender Celsius. This month, the firm’s attorneys said it had also been contacted by the CFTC, SEC, and Federal Trade Commission (FTC) with a court subpoena from the US District Court for the Southern District of New York.
The CFTC is looking into whether Celsius failed to disclose how customers’ funds were spent and whether some of its actions amounted to market manipulation. The firm is said to be cooperating with the inquiries, but details of the investigation have not been released to the public by the firm or the regulators.
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