3AC Co-founders Remain Silent, Creditors Go to Court

key takeaways

The hedge fund’s Singapore office was found vacant except for idle computer screens, a court filing said
Lawyers said people identifying as 3AC’s co-founders were mute and unseen on a Zoom call

The co-founders of crypto hedge fund Three Arrows Capital are not cooperating with liquidators, leaving its creditors scrambling to locate and freeze the company’s assets.

Three Arrows Capital (3AC) was ordered into liquidation by a British Virgin Islands court less than two weeks ago. Now lawyers acting on behalf of the fund’s creditors have said co-founders Su Zhu and Kyle Davies “have not yet begun to cooperate with the Foreign Representatives in any meaningful manner,” court documents filed late Friday showed.

A court hearing in New York is scheduled for 9 am ET on Tuesday.

People identifying as “Su Zhu” and “Kyle” were present on a Zoom call on July 8, but their video and audio were turned off throughout, with neither speaking despite being asked direct questions, the filing said. Any dialogue was conducted by Singapore-based legal representatives Advocatus Law LLP and Solitaire LLP, according to the court records.

Subsequently, Davies was subpoenaed to provide testimony via video conference and submit documents on July 19.

Christopher Farmer, a managing director at restructuring firm Teneo, found Three Arrows’ office in Singapore to have “appeared vacant except for a number of inactive computer screens,” lawyers said, adding that he also found unopened mail pushed against or under the door. People in nearby offices spotted occupants in the office as recently as May or early June 2022, they said.

The lawyers added Zhu is rumored to be involved in the sale of property in Singapore. Singaporean real estate firm EdgeProp reported the property was purchased in trust of Zhu’s 3-year-old son and valued at about $49 million.

“Notwithstanding the lack of engagement by the Founders, the Foreign Representatives have been pursuing their investigation with urgency and by all lawful means available to them,” the filing said.

A major risk to non-cooperation is that a sizeable portion of 3AC’s assets — made up of cash, cryptocurrencies and NFTs — is easily transferable, the lawyers wrote. So far, NFTs (non-fungible tokens) belonging to 3AC’s Starry Nights Capital have already reportedly been transferred to a new wallet.

Before moving to freeze the fund, the lawyers want the court to subpoena 3AC’s co-founders to list their assets — including wallets, bank accounts, derivatives contracts, securities and other company records.

3AC is at the center of a liquidity crisis in the cryptocurrency market, as it triggered a wave of contagion and fallout at some of the industry’s highest-profile names, from whom it borrowed significantly. After initial speculation about 3AC’s insolvency grew, many firms attempted to assuage investor fears that they didn’t have exposure to the fund.

Representatives for 3AC filed for bankruptcy on July 1, citing a collapse in business arising from extreme market fluctuations. Lawyers from Latham & Watkins wrote that they weren’t aware of the co-founders’ locations and that they were rumored to have left Singapore.

“Three Arrows borrowed unsustainably large amounts of money to put into different digital asset products, and so their extensive fingerprint means that we might be forced to reckon with more liquidations here,” said Les Borsai, co-founder at Wave Financial. “I think, though, that the contagion effect has mostly been mitigated.”

3AC had not returned Blockworks’ request for comment by press time.

Macauley Peterson contributed reporting for this story.

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