Three Arrows Capital Liquidators Sues TerraForm Labs For $1.3 Billion: Report

Defunct crypto hedge fund Three Arrows Capital (3AC) has its liquidators pursuing a $1.3 billion lawsuit against TerraForm Labs, the bankrupt digital asset company co-founded by Do Kwon.

This legal action is part of ongoing efforts to recover funds for 3AC’s creditors following the fund’s collapse.

3AC liquidators are pursuing TerraForm Labs

The liquidators of Three Arrows Capital (3AC) allege that TerraForm Labs manipulated the market for Luna and TerraUSD, causing the prices of these tokens to be artificially inflated.

This manipulation, they claim, induced 3AC to invest heavily in these assets before they were disposed of. The collapse of these tokens not only wiped out 3AC’s investment, but also led to substantial losses in the fund’s other digital holdings.

In January 2022, 3AC acquired Luna for $190 million as part of a larger $1 billion deal, which included investments from other companies. However, a massive TerraUSD sell-off just a few months later caused both TerraUSD and Luna to drop sharply, severely depleting the value of 3AC’s investment.

At the end of April 2022, 3AC’s Luna holdings were valued at approximately $462 million, but as of May 14, that value had fallen to just over $2,700. Simultaneously, the net worth of 3AC’s other digital assets was reduced by about $858 million.

TerraForm, which filed for Chapter 11 bankruptcy in January, is currently in liquidation after being found liable for fraud earlier this year. However, the amount of money that can be recovered still remains uncertain.

3AC’s legal battles intensify

Once a prominent figure in the crypto hedge fund industry, Three Arrows Capital (3AC) saw its downfall closely following the collapse of LUNA. A court in the British Virgin Islands then appointed liquidators to consultancy Teneo to recover the assets in an effort to pay the hedge fund’s creditors.

This lawsuit against TerraForm Labs is just one of several actions the liquidators have brought, as they are also pursuing claims against 3AC founders Su Zhu and Kyle Davies.

Meanwhile, sources familiar with the situation revealed that Zhu has been trying to offload at least one of his prestigious “good-class bungalows” in recent weeks amid the company’s ongoing liquidation process.

In particular, after the LUNA project crash, TerraForm co-founder Do Kwon was arrested in Montenegro last year. He now faces charges in both the United States and his home country of South Korea.

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