An 1,157-page affidavit pertaining to the high-profile bankruptcy of hedge fund Three Arrows Capital has been circulated online by New York-based consulting firm Teneo.
The massive report, filed by joint liquidators Christopher Farmer and Russell Crumpler before the High Court of the British Virgin Islands, contains a slew of revelations of severe mismanagement leading to the collapse of the once-leading Singapore-based crypto fund.
Among the most egregious of the affidavit’s rap sheet are the elaborate purchases of co-founders Su Zhu and Kyle Davies.
While consistently ignoring any correspondence attempted by the company’s litany of creditors, Zhu and Davies reportedly made a downpayment on a US$50mln superyacht.
Speculated to have been bought with borrowed funds, Charles McGarraugh of Blockchain.com (a respondent in the affidavit) stated: “It is also my understanding that Mr. Davies intends this yacht to be larger than any yacht owned even by Singapore’s richest billionaires.”
These elaborate purchases drew the ire of Ethereum co-founder Vitalik Buterin, who lambasted the founders for using borrowed money to obtain a superyacht to “impress investors”.
The yacht in question was doubtfully ever delivered to Singapore and its whereabouts is unclear; Zhu and his wife are cited as the joint tenants, but “the property is purportedly being held in trust for their three-year old son,” according to the court filings.
Other high-value properties owned by Zhu appear to be on the market.
Singapore-based The Straits Times reported on July 1 that “the market is pondering the fate of at least two good class bungalows (GCBs) belonging to crypto billionaire Zhu Su and his family”.
Zhu’s bungalow (pictured) is purportedly on the market — Source: KUA CHEE SIONG via The Strait Times
The paper added: “Market sources who are familiar with the GCB sector say that at least one property may be put up for sale.”
3AC’s multibillion-dollar debt grave
The tome lists a litany of high-value margin calls against Three Arrows Capital, outlining a debt black hole that the hedge fund had little hope of crawling out from.
Some, such as the US$75mln owed to Celsius Network and US$350mln owed to Voyager, are common knowledge by now.
In a bizarre twist, Zhu himself is listed as a US$5mln credtior against his own company, while Davies' wife apparently has her own US$64mln claim.
But other eye-watering defaults include:
- US$901mln over numerous tranches between November 2021 and February 2022, issued by Equities First Holdings
- US$16mln on June 22 issued by Singapore-based exchange Bitget
- 500 BTC and US$10mln issued by Ashla International and
- US$2.3bln on 15 June 2022, issued by Genesis Asia Pacific
Genesis, the largest creditor, liquidated 3AC’s position in June and has proceeded to launch an arbitration to recover owed funds.
But 3AC is facing legal threats from more than one direction, according to statements by Blockchain.com, which seeks an undisclosed amount of debt obligations.
Blockchain.com’s counsel Nima Mohebbi suggested that “several other creditors have threatened to initiate arbitration against 3AC and are actively seeking remedies against 3AC”.
Furthermore, 3AC has been cited as a defendant in the class-action complaint against Do Kwon’s Terraform Labs, the entity which ostensibly set this entire ordeal into motion following the collapse of its LUNA and TerraUSD (UST) cryptocurrencies.
All arrows point to Terra
When Terraform Labs (TFL)’s multi-billion-dollar LUNA and UST coins — both of which were once among the ten largest cryptocurrencies by market capitalisation — death spiralled to oblivion in May, it caused a chain reaction that has so far managed to wipe out over US$2tln from the global crypto economy.
3AC’s exposure to Terra has since been valued at over US$670mln and the fund was “leveraged long everywhere and were getting margin called” according to an affadavit statement by Danny Yuan, the chief executive officer of cryptocurrency trading firm 8 Blocks Capital.
Worse still, according to Yuan, “instead of answering the margin calls, they ghosted everyone”.
Now 3AC faces exposure to Terra once again, in the form of a class-action lawsuit filed by plaintiff Nick Patterson before the California courts.
Citing securities law violations, the class action, disclosed as part of the affidavit, states: “Three Arrows Capital acted on behalf of TFL to promote the stability of UST and mislead investors into believing that the Luna Foundation Guard’s reserve pool would be sufficient to defend the peg against a proverbial run on the bank by UST/LUNA investors”.
3AC is just one of many defendants cited in the case, but a particularly noteworthy one considering that founders Su Zhu and Kyle Davies remain in hiding.
Desperately seeking Su Zhu
Aside from an oblique Tweet on July 12 in which 3AC’s liquidators were accused of “baiting”, little has been heard from Zhu or Davies.
So the big question remains: Where are the founders… and that yacht?
Perhaps both questions were already answered years ago.
Climate change talk is cheap, but sailing the seven seas on your yacht as an international fugitive is expensive. https://t.co/kq12Me4HFD
— Zhu Su ???? (@zhusu) February 8, 2019
“Climate change talk is cheap, but sailing the seven seas on your yacht as an international fugitive is expensive,” Zhu Tweeted way back in 2019.
Which port Zhu and Davies manage to arrive at to weather out the storm, remains to be seen.