US regulators are prying deep into the remnants of failed hedge fund Three Arrows Capital Pte Ltd (3AC, 三箭資本) as they try to untangle the fallout of this year’s crypto crash.
Three Arrows, which until recently was one of the industry’s most prominent firms, filed for bankruptcy in July after the broad sell-off in digital assets spurred in part by the collapse of the terra blockchain.
The US Commodity Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC) are looking into whether the money manager breached rules by misleading investors about the strength of its balance sheet and not registering with the agencies, two people familiar with the matter said.
Photo: Reuters
Scrutiny from the agencies, both of which declined to comment, can lead to monetary fines and other penalties for firms and individuals.
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 start-ups.
However, the firm sustained losses on its position in the terra blockchain project, which came crashing down as the so-called algorithmic stablecoin terraUSD crumbled in May.
As the token’s collapse spread across the broader crypto market over the following weeks, Three Arrows 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.
However, that is 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 Three Arrows’ founders have not fully cooperated with the unwinding.
They took the unusual step of asking a US judge for permission to serve founders Zhu Su (蘇朱) and Kyle Davies with subpoenas through their Twitter accounts and e-mail addresses, because normal methods have failed, court documents filed last week showed.
Celsius Network LLC is also facing scrutiny from US regulators. Lawyers for the firm this month disclosed that 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, the SEC and the US 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, a person familiar with the matter said.
Although the CFTC’s jurisdiction over crypto is generally limited to derivatives, the agency can take enforcement action if it believes there is 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.
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