Liquidators for crypto hedge fund Three Arrows seek $40.5m from superyacht sale

NEW YORK - Insolvency professionals overseeing the clean-up of defunct crypto hedge fund Three Arrows Capital said they have taken control of more than US$35 million (S$47 million) of hard currencies, seized more than 60 types of digital tokens and even sought US$30 million (S$40.5 million) from the sale of a superyacht named Much Wow as part of their recovery efforts.

But the

lack of cooperation from fund founders Zhu Su and Kyle Davies

is complicating the liquidation, which is designed to repay creditors owed more than US$3 billion as much as possible.

Advisers for Three Arrows have still had only two live conversations – via video conference – with the founders, who are believed to be in either Bali or the United Arab Emirates, according to a presentation delivered in bankruptcy court on Friday.

“We have had to effectively recreate the company and the records of the company from scratch” because Mr Zhu and Mr Davies are not cooperating, said Mr Russell Crumpler, a liquidator for Three Arrows in the British Virgin Islands.

Three Arrows collapsed earlier in 2022

after a series of mistimed bets and soured crypto prices left the fund, known for making trades turbocharged by leverage, facing margin calls.

It previously managed around US$4 billion in assets. The implosion was one of several blow-ups in the spring that rocked the industry, which is absorbing a new shock following the sudden undoing last month of Mr Sam Bankman-Fried’s FTX empire.

Mr Zhu and Mr Davies’ lack of engagement is making even the simplest legal processes difficult. Because their precise whereabouts are unknown, lawyers are trying to subpoena the duo via Twitter. But on Friday, US bankruptcy judge Martin Glenn voiced concern about the effectiveness of such an order because Mr Zhu and Mr Davies’ citizenship is unclear.

A lawyer for Three Arrows railed against the founders in the hearing on Friday, saying the pair are not upholding their duty to help creditors get repaid.

He also said the duo hired security experts in the run-up to the hedge fund’s collapse to establish a secure way to communicate that could be deleted.

“The founders’ behaviour shows they have something to hide,” Mr Adam Goldberg, a Latham & Watkins lawyer representing Three Arrows in the United States, said in the hearing. Mr Zhu and Mr Davies have left liquidators with “no choice” but to subpoena them for information, he said.

Mr Zhu, reached by phone, refuted the liquidators, claiming he and Mr Davies “have been cooperating throughout”, and that they provided “legal Saft documents for private investments as well as contract details, a full asset list of the fund, contacts of all service providers who have info, ongoing ad hoc support”. Saft refers to a contract that gives its owner the right to a certain number of coins to be issued in the future.

Mr Davies said on Twitter that “unfortunately our liquidators seem to refuse to engage us constructively. After months, cash in a bank account, minimal asset sales, there have still been no disbursements to creditors. Let us speak openly with all creditors to find a better way forward”.

Representatives at a law firm for Mr Zhu and Mr Davies based in Singapore did not respond to a request for comment.

Superyacht

Advisers have uncovered evidence of money flowing directly from Three Arrows to pay for Much Wow, according to the hedge fund’s liquidators.

The company building the boat ultimately cancelled the purchase contract because final amounts owed were not paid, and the ship has since been resold.

The entity formed to own the vessel, Much Wow Ltd, is now in insolvency proceedings in the Cayman Islands. Proceeds from the sale of the boat will ultimately be funnelled to Much Wow, and liquidators have filed a US$30 million claim in the case. BLOOMBERG