The once-prominent crypto hedge fund, Three Arrows Capital (3AC), is now at the center of a $1.3 billion lawsuit against TerraForm Labs. The liquidators of 3AC are aggressively pursuing legal action against the bankrupt digital assets company, alleging market manipulation that resulted in substantial losses for the fund. TerraForm Labs, co-founded by Do Kwon, is accused of artificially inflating prices for Luna and TerraUSD, leading to devastating consequences for 3AC’s investments.
In January 2022, amidst a broader $1 billion deal involving multiple firms, 3AC acquired $190 million worth of Luna. However, a massive sell-off of TerraUSD months later triggered a sharp decline in both Luna and TerraUSD prices. The value of 3AC’s Luna holdings plummeted from $462 million to just over $2,700 by May 14, causing significant losses not only in Luna but also in the fund’s other digital assets, which dropped by approximately $858 million.
Following the collapse of LUNA, Three Arrows Capital faced a rapid downfall, leading to the appointment of liquidators from the consulting firm Teneo to recover assets for creditors. In addition to the lawsuit against TerraForm Labs, 3AC’s founders, Su Zhu and Kyle Davies, are also facing legal action initiated by the liquidators. Sources familiar with the situation revealed that Zhu has been trying to sell off assets, including prestigious properties, amidst the ongoing liquidation process.
TerraForm Labs, which filed for Chapter 11 bankruptcy, has been found liable for fraud, further complicating the situation. Co-founder Do Kwon’s arrest in Montenegro last year, followed by facing charges in the United States and South Korea, has added another layer of legal troubles for the company. The uncertain recovery of funds and the ongoing legal battles paint a grim picture of the once-thriving Three Arrows Capital and its entanglement with TerraForm Labs’ downfall.