The company handling the liquidation of Three Arrows Capital (3AC), Teneo, froze almost $1.4 billion of assets of the crypto hedge fund, both digital and otherwise.
Due to the freeze, the funds cannot be accessed by the co-founders of 3AC, Kyle Davies, and his wife Kelly Chen and Su Zhu.
The freeze
According to Teneo, they had sought the worldwide freezing order over claims that the 3AC founders should be held responsible for causing the position of the hedge fund to deteriorate.
The liquidators have alleged they caused the position of 3AC to deteriorate by an amount equal to the value of the freezing order.
Teneo has been overseeing the liquidation of the assets of 3AC to pay back the company’s creditors worth $3.5 billion.
Last year in June, Three Arrows Capital had been ordered to liquidate. Teneo said that trying to get the two founders to cooperate had been a long and intensive effort.
Several times the law firm has reached out to a judge to order Zhu and Davies to cooperate, as it claimed that the two founders were withholding information.
The co-founders
The US authorities have also pursued the two founders. Davies announced back in August that he had renounced his American citizenship in 2017 when he became a resident of Singapore.
Therefore, he claimed that he was no longer answerable to US courts. The same amount of money had been demanded by the company from the founder back in June.
A person familiar with the matter had revealed back then that Teneo had had a meeting with the creditors of the crypto hedge fund.
The company had then come to know of the allegations that the two founders had continued taking on leverage last year in May and June even though the hedge fund had already been insolvent.
Some company assets have been secured by Teneo, which include some NFTs, a yacht worth $30 million, and about $3.5 million in cash.
However, this value is far lower than the $3.5 billion worth of assets missing from the balance sheet of 3AC.
Terra exposure
The crypto hedge fund had gone under because it had been overexposed to Terra, the algorithmic stablecoin protocol that had come crashing down in May last year.
Davies and Zhu had admitted in an interview last year that they had made big bets on TerraUSD and had been close to Do Kwon, the co-founder of Terra.
Kwon had fled to Montenegro before he could be arrested and found guilty of trying to use a fake passport to escape the country.
He is now trying to fight off extradition to the United States to avoid facing charges. Not long after 3AC’s collapse, both Davies and Zhu had gone silent.
The two co-founders claim that they had gotten death threats, but they have launched a new exchange since then called OPNX.
The exchange facilitates traders in swapping bankruptcy claims for other defunct crypto companies, such as the notorious FTX crypto exchange.