Three Arrows Capital — a Virgin Islands-registered, Singapore-based cryptocurrency hedge fund once worth more than $3 billion in assets — rocked the crypto world on Friday by filing for Chapter 15 bankruptcy in Manhattan just four days after it was ordered into liquidation by the VI Commercial Court. The liquidation followed the company’s June 27 default on a $667 million loan, according to a press release from New York-based lender Voyager Digital, which explained that the loan is worth roughly 15,000 bitcoin and $350 million worth of a stable-coin cryptocurrency called USD Coin.
“We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands,” Voyager CEO Stephen Ehrlich said in the June 27 release.
The same day, 3AC filed for liquidation in the VI Commercial Court, with Russell Crumpler and Christopher Farmer of VI firm Teneo appointed as its joint co-liquidators, the release stated.
Voyager added that it would attempt to recover funds from 3AC, and that it was consulting with its own legal team to determine its next step.
The lender also noted at the time that 3AC’s default hadn’t affected Voyager’s platform and that it still had $137 million worth of crypto and cash assets on hand.
However, on Friday, Voyager announced that it was temporarily suspending trading, deposits, withdrawals and loyalty rewards at 2 p.m. Eastern Time. Yesterday morning, the lender announced that it was filing for Chapter 11 bankruptcy in US court. Volatility in the crypto market and the default of 3AC “require us to take deliberate and decisive action now,” Mr. Ehrlich said yesterday, adding, “The Chapter 11 process provides an efficient and equitable mechanism to maximise recovery.”
The 3AC bankruptcy filing is one of the most prominent VI-related crypto collapses during a massive sell-off currently plaguing the industry.
The value of Bitcoin — a leading crypto token — has plummeted more than 70 percent from its November high of about $68,000. And last month, the crypto market capitalisation fell below $1 trillion for the first time since January 2021.
The 3AC bankruptcy filing on Friday at a Manhattan district court reported that the hedge fund had more than $3 billion worth of assets under management as of April, but that it had collapsed “in the wake of extreme fluctuations in cryptocurrency markets.”
The filing noted that “several of the debtor’s lenders” other than Voyager had issued notices of default “in respect of the debtor defaulting on many of its loan obligations.”
The firm also sought protection of its assets under Chapter 15.
“The debtor’s financial distress and the BVI proceeding have been widely reported and the result of the proceeding has implications on the global digital asset markets,” the filing stated.
The filing added that the firm has three directors: founders Kyle Davies and Su Zhu, as well as Mark James Dubois, who is identified in the filing as a “BVI resident.”
The filing identifies 3AC’s registered office as “ABM Chambers.” Mr. Dubois — who declined to comment on Tuesday — is listed on the ABM Group’s website and on the Financial Services Commission’s website as the contact for ABM.
The Friday filing states that the whereabouts of Messrs. Davies and Zhu “remains unknown” but “they are rumoured to have left Singapore.”
Mr. Zhu’s latest Twitter update, on June 14, stated, “We are in the process of communicating with relevant parties and fully committed to working this out.”
Founded in 2012
According to the 3AC website, Messrs. Zhu and Davies founded the firm in 2012, handling crypto hedge funds and venture capital. Their investments include decentralised finance projects like Aave and Lido, and a blockchain game called Axie Infinity.
Friday’s filing noted that a creditor it didn’t name had initiated arbitration proceedings against 3AC in New York, and thus the firm is seeking “emergency relief to seek to conserve the debtor’s assets, or, alternatively, freeze the debtor’s assets pending an arbitration of its claims.” According to the document, the arbitration has been “temporarily stayed.”