Three Arrows Capital Liquidators File $1.3B Claim In TerraForm Bankruptcy
On Friday, August 9, 2024, liquidators of collapsed crypto hedge fund Three Arrows Capital Ltd. filed a $1.3 billion claim in the TerraForm Labs Pte. bankruptcy in Delaware federal court.
According to court document, liquidators Russell Crumpler and Christopher Farmer of Teneo Holdings LLC alleged that TerraForm misled Three Arrows Capital about the stability of its cryptocurrencies TerraUSD (UST) and Luna.
UST was initially pegged to the U.S. dollar and marketed as a “stablecoin,” while Luna’s value was tied to UST’s. The liquidators claim that TerraForm advertised the tokens in an inflated manner, inducing Three Arrows Capital to invest heavily both directly and through other investment vehicles. These investments later became worthless when UST lost its dollar peg in 2022, contributing to the collapse of TerraForm and wiping out the value of associated tokens.
The liquidators are seeking $1.3 billion in actual and consequential damages from Three Arrows Capital’s direct purchases of Luna and UST tokens and the “complete loss” of other cryptocurrency investments. They allege that TerraForm’s misrepresentations and omissions about the stability of UST and Luna led to the hedge fund’s heavy investment in the months before the stablecoin’s de-pegging and the collapse of both assets.
Three Arrows Capital is now undergoing its own insolvency proceeding in the British Virgin Islands. Founded in 2012 by Su Zhu and Kyle Davies, the Singapore-based hedge fund once focused on risk-adjusted returns through holdings in major cryptocurrencies like bitcoin and ether. However, it was quickly pushed into bankruptcy in 2022 after defaulting on a $660 million loan from Voyager Digital following TerraForm’s collapse and the downturn it sparked in crypto markets.
The claim form also addresses a $190 million investment Three Arrows Capital made in Luna tokens in January 2022 with the Luna Foundation Guard. The liquidators argue Three Arrows Capital believed this would support TerraForm’s UST reserve but nearly half was actually directed to an “anchor protocol reserve” used to artificially prop up an unsustainable interest rate. As UST lost its dollar peg and Luna collapsed, billions in value was wiped out across the Terraform network.
The liquidators are seeking damages for the losses incurred by Three Arrows Capital across its direct investments and holdings rendered worthless by the events stemming from TerraForm’s collapse and the downfall of UST and Luna. The claim was filed as part of TerraForm’s ongoing bankruptcy proceedings in Delaware.
Please contact BlockTribune for access to a copy of this filing.
