FTX lawyers reject 3AC’s $1.53B claim

Collapsed crypto exchange FTX lawyers have rejected a $1.53 billion recovery claim from Three Arrows Capital’s liquidators. The firm’s lawyers argued that the losses resulted from a risky trading strategy that should not be paid for by creditors.

3AC liquidators initially filed a $120 million claim in FTX’s bankruptcy case in June 2023 and expanded it to $1.53 billion in November 2024. The company alleged claims including breach of contract, fiduciary duty, and unjust enrichment.

FTX accuses 3AC of risky leveraged strategy 

The hedge fund alleged FTX held $1.53 billion in its assets that were liquidated to settle liabilities in 2022, contributing to 3AC’s collapse. The firm argued that the transactions were avoidable and the defunct crypto exchange’s debtors had delayed providing the information that would have uncovered the liquidations. Chief Judge John Dorsey sided with 3AC and granted the motion in March.

FTX filed an objection on Friday in the U.S. Bankruptcy Court for the District of Delaware, its lawyers maintaining that the claims were illogical and baseless. They also argued that the hedge fund “bet big” that crypto prices would increase, and when they instead dropped, the company became a victim of its “own risky strategy.”

“The Joint Liquidators ask this Court to force other Exchange customers and creditors to foot the bill for 3AC’s failed strategy by asserting illogical and baseless claims for $1.53 billion.”

-FTX Lawyers.

The lawyers also disputed the account balance and how 3AC arrived at the $1.53 billion figure. They believe the firm relied on inaccurate account balances from June 12, 2022, when the company’s crypto balance was $1.02 billion, not $1.59 billion, and the negative U.S. dollar amount was $733 million, not $1.3 billion.

The theory of lost assets, which FTX believes is the crux of 3AC’s argument, is based on the crypto balance on June 12, 2022, and asks to recover all of the balance lost in subsequent days. The lawyers said it’s a false premise and lacks any legal or factual merit, and that 3AC is owed nothing.

The collapsed crypto exchange maintains that 3AC only had an available balance of $284 million, which was further chipped away by crypto market price declines and withdrawals by 3AC of $60 million. FTX also revealed that the Singapore-based firm had a negative USD balance and a positive digital asset balance at the end of the day on June 12, 2022.

Lawyers acting for FTX noted in the objection that the only liquidation against 3AC was for $82 million in crypto. They argued that the amount was contractually permitted under the credit and margin agreements to ensure the firm complied with account balance requirements.

The lawyers also claimed in the objection that the liquidation did not reduce the overall account balance because the value was added to the fiat 3AC account in USD. FTX said the $82 million liquidation benefited 3AC by preserving the value of its accounts. 

The Singapore-based hedge fund has until July 11 to file a reply to FTX’s objection. A non-evidentiary hearing is also set for August 12 before Chief Judge Karen Owens in the U.S. Bankruptcy Court for the District of Delaware.

3AC files $1.3B claim against Terraform Labs

In August last year, 3AC also pursued claims against collapsed crypto firm Terraform Labs through a $1.3 billion claim in Terra’s bankruptcy case. The hedge fund’s liquidators alleged that Terraform Labs misled 3AC about the stability of tokens in the Terra ecosystem, including Terra’s algorithmic stablecoin, TerraUSD (UST), and the UST-tied token Luna (LUNA).

The liquidators, represented by Russell Crumpler and Christopher Farmer of Teneo Holding, argued that Terraform Labs advertised the tokens in a manner that inflated the price of the assets. Those misrepresentations induced 3AC to invest heavily in Terra just a few months after UST depegged from the dollar, causing a massive crash in the Terra ecosystem, and implicating several companies.

3AC liquidators were seeking damages caused by its direct purchases of UST and LUNA and associated damages from the complete loss of value of its crypto investments caused by the collapse of LUNA and UST. On March 30, Terraform opened a claims portal for investors affected by its collapse.

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