New York judge freezes assets of Three Arrows Capital
A federal judge in a New York bankruptcy court has frozen the remaining assets of crypto hedge fund Three Arrows Capital following the company’s rapid decline in notoriety.
The fund, founded almost a decade ago, was managing $10 billion in assets just a few months ago. Now its two co-founders are hiding from angry creditors, who are trying to recoup some of their losses. Ahead of the bankruptcy filing, a court in the British Virgin Islands ordered the embattled fund to be liquidated in order to pay off its debts.
Judge Martin Glenn of the Southern District of New York on Tuesday granted the emergency motion to freeze the assets of Three Arrows. CNBC participated in a court hearing, which covered the next steps in the bankruptcy process.
Glenn noted in the written decision that only the appointed bankruptcy liquidators have the authority to “transfer, encumber or otherwise dispose of any assets of the debtor situated within the territorial jurisdiction of the United States.”
As part of Glenn’s decision, global consulting firm Teneo, which was tasked with handling the liquidation, was also allowed to subpoena Three Arrows co-founders Zhu Su and Kyle Davies, as well as banks, crypto exchanges and other institutions and companies that have done business with the company.
The main concern is that Three Arrows, also known as 3AC, and its management team could siphon off funds ahead of formal liquidation. Coindesk reported that Zhu was looking to sell his $35 million property in Singaporeand there are reports of at least one other digital asset transfer of a non-fungible token held by the fund.
“A key part of this motion is to put the world on notice that it is the liquidators who control the debtor’s assets at this stage,” Adam Goldberg, an attorney representing Teneo, said at Tuesday’s hearing.
Zhu and Davies did not respond to requests for comment. Their lawyer, Christopher Anand Daniel of Singapore-based Advocatus Law, also did not respond to CNBC’s request for comment.
Goldberg, of law firm Latham & Watkins, said the liquidators were looking for documents such as account statements and digital wallet information.
One of the main reasons for the aggressive action is that Zhu and Davies’ physical whereabouts are “currently unknown”, according to attorneys representing the creditors. The creditors also allege that the Singapore liquidators found 3AC’s offices to be vacant except for a few idle computer screens.
But after a nearly month-long hiatus from Twitter, Zhu broke his Twitter silence early Tuesday, writing that the company’s efforts to cooperate with creditors had been met with “bait”.
From his verified account, Zhu shared screenshots of emails sent by his attorney to attorneys representing the liquidators. In these messages, the lawyer wrote that the families of the co-founders “have received threats of physical violence”. He also said that Zhu and Davies had “worked under a lot of time pressure”, noting that they “had to respond to requests from the Monetary Authority of Singapore last week”.
In the email, Daniel, their attorney, said they attached a spreadsheet with details of the company’s assets and said they would provide additional information about the company’s assets “on a keep on going”.
CNBC asked Daniel for the spreadsheet, but got no response. Goldberg told the hearing that the information provided to his team was “in no way a sufficient form of cooperation.”
Nic Carter of Castle Island Ventures, which invests in blockchain-based companies, said the process could ultimately take years.
“I wouldn’t hold my breath to see the situation resolved,” Carter said. “I would be extremely concerned about asset dispositions and the attempt to expropriate them or perhaps expropriate the assets owed to creditors, and remove them from the process for the personal use of the principles here.”
Carter said the case is particularly complex as it involves entities in Dubai, Singapore and other offshore locations.
“The level of coordination required to unify the judicial process here is very significant,” Carter said.
– CNBC’s Dan Mangan contributed to this report.