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US Regulators Probing Bankrupt Crypto Hedge Fund Three Arrows Capital

The U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are now reportedly investigating bankrupt crypto hedge fund Three Arrows Capital (3AC). 

The regulators are looking into whether 3AC misled investors about the financial health of its balance sheet and failed to register with the proper authorities. 

Until recently, Three Arrows was one of the crypto industry’s most prominent firms before they filed for bankruptcy in July after the broad sell-off in digital assets spurred in part by the collapse of the Terra blockchain. 

Currently, the whereabouts of 3AC founders Su Zhu and Kyle Davies remain unknown, with some people accusing the duo of being on the run. 

This has prompted Teneo, the court-appointed liquidator for 3AC, to request permission from a U.S. court to subpoena the embattled crypto hedge fund’s founders through “alternative means”, which includes racing out to the duo through their Twitter accounts and email addresses, since normal methods have failed. 

At its zenith, Three Arrows counted a few billion dollars under management, making it a major player in the crypto world. Known for its bullish stance, it was also a recipient of loans from firms across the industry, and was a venture investor in some of the industry’s best-known startups. 

But the firm sustained losses on its position in the Terra blockchain project, which came crashing down as the so-called algorithmic stablecoin TerraUSD crumbled last May like a saltine cracker under an elephant’s hoof. 

As the token’s collapse spread across the broader crypto market over the following weeks, 3AC was unable to meet margin calls from its lenders and eventually declared insolvency. 

Liquidators overseeing the wind-down of the firm, which operated from Singapore until at least early May, have seized control of tens of millions of dollars of the fund’s assets. But that’s a fraction of the billions of dollars that creditors including bankrupt crypto lenders Voyager Digital and Celsius Network said they were owed. 

Teneo, the court appointed liquidator, has claimed that 3AC’s founders haven’t fully cooperated with the unwinding. They took the unusual step of asking a US judge for permission to serve Zhu and Davies with subpoenas through their Twitter accounts and email addresses because normal methods have failed, according to court documents filed last week. 

Celsius is also facing scrutiny from US regulators. Lawyers for the firm this month disclosed it had received a federal grand jury subpoena from the US District Court for the Southern District of New York, as well as inquiries from the CFTC, SEC and Federal Trade Commission. 

The CFTC is investigating if Celsius failed to disclose how customers’ funds were used, and if some of its conduct amounted to market manipulation, according to a person familiar with the matter. 

The regulator declined to comment on its probe of the crypto lender. A representative for Celsius said the firm is “cooperating with all regulatory inquiries, and regulators are key stakeholders in our reorganization.” The firm declined to comment on the specifics of any inquires. 

Although the CFTC’s jurisdiction over crypto is generally limited to derivatives, the agency can take enforcement action if it believes there’s fraud or manipulation in the underlying market. 

The SEC claims oversight over digital coins that qualify as securities under its rules. Both regulators also oversee investment firms. 

The CFTC and the SEC aren’t the only authorities that have turned up the heat on Three Arrows. On June 30, the Monetary Authority of Singapore reprimanded the firm for allegedly providing false information and exceeding the limit on its assets under management. 

Court documents earlier this month indicated that the liquidators of the fund had gotten permission to repatriate some assets from Singapore to the British Virgin Islands.

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Luke Baldwin

Hi, I’m Luke Baldwin and I have been investing in crypto for the past two years. Despite knowing so much about the system and the different ways you can use it to your benefit, I still found the transition rather difficult.

That is why I made my site - Stock Maven. Now that I feel settled and confident about trading, I want to be a source of help to anyone else who might be struggling to break into the crypto market successfully.

My website is full of my tips and tricks, as well as information that I have always found interesting about crypto. My friends and family are sick of hearing me talk about it, so now it’s your turn!

I hope that you stick around and find something useful on my site. Remember, to make it big in crypto, you’ve got to be confident! Go for it and don’t look back.

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