The Crazy Twist in Crypto Hedge Fund’s Spectacular Flameout

The Crazy Twist in Crypto Hedge Fund’s Spectacular Flameout

The founders of a major crypto hedge fund that went belly up last month, bringing at least one other company down with it, have gone missing, according to court documents.

Three Arrows Capital, a hedge fund started in 2012 by well-known crypto investors Su Zhu and Kyle Davies, filed to liquidate the company in the British Virgin Islands late last month, following a dramatic crash in the price of crypto.

Foreign representatives appointed to oversee the company’s liquidation told the court last week that the founders had “not yet begun to cooperate with the Foreign Representatives in any meaningful manner,” and that the two men’s physical whereabouts were “currently unknown.”

The liquidators claimed they had repeatedly asked the founders for an emergency meeting but were provided only a single Zoom call in which the founders’ did not speak and the video function was turned off. When they asked for access to the founders’ offices and information about their bank accounts and crypto wallets, lawyers for the company told them they would get back to them, the liquidators say.

One of the liquidators said he tried to visit the company’s offices in Singapore and found them “​​vacant save for inactive computer screens,” with mail piled up outside the door.

“The Foreign Representatives’ efforts are continuing in earnest but have been frustrated by this lack of cooperation to date,” the liquidators wrote in a motion submitted to the U.S. Bankruptcy Court for the Southern District of New York. The filing was first reported by Bloomberg.

One of the founders shot back at the accusations on Twitter Monday, claiming the liquidators were “baiting” the founders, who he said had been cooperating in “good faith.” He included screenshots of what appeared to be emails between Three Arrows’ lawyer and the liquidators, in which the lawyer called the liquidators’ behavior “highly disappointing” and said the founders would be seeking “the appropriate sanctions.”

In the screenshots, the lawyer also claimed the founders and their families had been receiving threats of violence, though he did not specify from whom. The tweet also does not reveal the founders’ whereabouts.

Zhu, Davies, and their attorney did not immediately respond to emails seeking comment. An attorney for the liquidators did not respond to calls or emails.

Until recently, Three Arrows Capital was seen as a crypto success story, with a reported $3 billion under its control. But a crash in the price of cryptocurrencies this spring caused the company to default on several loans. At least one creditor, Voyager Digital, filed for bankruptcy this month after Three Arrows failed to pay back $650 million. Another major lender, BlockFi, said it lost $80 million.

The company was forced into liquidation in the British Virgin Islands in late June and filed for Chapter 15 bankruptcy in New York a few days later. At the time, liquidators told the court they expected a “significant number of creditors” to file claims against the company.

The liquidators suggested in their filing that they feared the founders would make off with some of their money before it could be distributed to creditors. There was an “actual and imminent risk” that the company’s assets would be “transferred or otherwise disposed of by parties other than the court-appointed Foreign Representatives,” they wrote—namely, to the founders or agents acting on their behalf.

On Tuesday, the court granted a motion giving the liquidators exclusive authority to administer the company’s assets and affairs in the United States.

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The Daily Beast

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