The entire stablecoin market is now worth over $160 billion.
Justin Tallis | AFP via Getty Images
The co-founders of failed crypto hedge fund Three Arrows Capital appear to be on the run from creditors, according to court documents recently filed in New York.
Lawyers representing creditors say the physical whereabouts of Zhu Su and Kyle Davis, who founded Three Arrows in 2012, are “currently unknown” ahead of a hearing set for 9 a.m. ET on Tuesday to discuss next steps in the process of liquidation. The documents filed Friday night also allege the founders have not yet begun to cooperate with the liquidation process “in any meaningful way.” On Monday, the lawyers asked the court to preserve the anonymity of the creditors.
Zhu and Davis did not respond to requests for comment.
Three Arrows, also known as 3AC, managed about $10 billion in assets as recently as March. On July 1, the firm filed for Chapter 15 bankruptcy protection from US creditors in the Southern District of New York after the cryptocurrency plunge and the collapse of the terraUSD (UST) stablecoin project wiped out its assets.
Before filing for bankruptcy, a court in the British Virgin Islands ordered the liquidation of the beleaguered fund to pay back debts.
3AC is now in bankruptcy court, facing angry creditors who want their money back. Global consulting firm Teneo has been hired to help manage the liquidation, starting with trying to identify what’s left.
According to a court filing on Friday, Zhu and Davis, both former Credit Suisse traders, took part in an introductory Zoom call last week to discuss key steps to preserve their assets. Neither founder turned on their video, and both remained off throughout, with all dialogue conducted through a lawyer. Their lawyers said at the time that they “intend to cooperate.”
During the meeting, representatives helping facilitate the liquidation requested immediate access to 3AC’s offices and information related to their bank accounts and digital wallets. As of Friday, that access had not been granted, the statement said.
When the fund’s liquidators previously arrived at 3AC’s Singapore office in late June in an attempt to meet with the founders, “the offices appeared empty except for a number of inactive computer screens”.
The document notes that while the office door was closed, representatives were able to view unopened mail addressed to Three Arrows that “appeared to have been pushed under the door or propped against the door.” Neighbors in neighboring offices said they last saw people in office 3AC in early June.
Meanwhile, creditors are figuring out what assets are left.
Teneo’s Russell Crumpler, who has been tasked with facilitating the bankruptcy process, said in an affidavit that there was a “real risk” that 3AC’s assets would disappear “in the absence of immediate powers of discovery.”
“This risk is heightened because a significant portion of the debtor’s assets consist of cash and digital assets such as cryptocurrencies and non-fungible tokens that are easily transferable,” Crumpler said in a statement.
There are reasons for such concern. One of the NFT 3AC was transferred to another crypto wallet, according to a prominent NFT collector and investor.
In a statement on Friday, the creditors asked the court to suspend 3AC’s right to transfer or dispose of any assets. The lawyers are also asking the court to subpoena the founders or others who may have information about 3AC’s assets. This can include banks, crypto exchanges and counterparties.
3AC’s insolvency has already had a major impact on the broader crypto market because so many institutions held money in the company.
Digital asset brokerage Voyager Digital has filed for Chapter 11 bankruptcy protection after 3AC failed to repay about $670 million it borrowed from the company. US crypto lenders Genesis and BlockFi, crypto derivatives platform BitMEX and crypto exchange FTX also suffered losses.
WATCH: Voyager Digital suspends withdrawals as Three Arrows Capital files for bankruptcy
The founders of the bankrupt Three Arrows crypto hedge fund are missing
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