Liquidators of the defunct cryptocurrency hedge fund Three Arrows Capital (3AC) are seeking $1.3 billion in damages from Terraform Labs, alleging that misleading information led to significant losses following the collapse of the Terra ecosystem in May 2022. The claim was filed in a Delaware federal court on August 9, according to Law360.
The 3AC liquidators, represented by Russell Crumpler and Christopher Farmer of Teneo Holding, accuse Terraform Labs of misleading the Singapore-based hedge fund about the stability of Terra’s tokens, including the algorithmic stablecoin TerraUSD (UST) and its associated token Terra Luna (LUNA). They argue that Terraform Labs advertised these tokens in a manner that artificially inflated their prices, which led 3AC to invest heavily in Terra just months before the UST depegged from the dollar, resulting in a catastrophic crash of the Terra ecosystem.
The liquidators are seeking damages related to 3AC’s direct purchases of UST and Luna, as well as additional damages from the complete loss of value of 3AC’s cryptocurrency investments due to the collapse of these tokens.
This claim follows the United States Securities and Exchange Commission’s ruling in April 2024, where Terraform Labs co-founder Do Kwon was found liable for defrauding investors. Kwon, who was released from prison in Montenegro, is facing extradition requests from both the United States and South Korea.
Founded in 2012 by Su Zhu and Kyle Davies, 3AC was one of the world’s largest crypto hedge funds, managing up to $18 billion in assets at its peak. However, the hedge fund failed to meet margin calls following the Terra crash and filed for bankruptcy in late 2022. Insolvency proceedings are currently underway in the British Virgin Islands.
In the previous year, a British Virgin Islands court prohibited 3AC co-founders Zhu and Davies from transferring or selling assets worth up to $1.1 billion. 3AC’s liquidator, Teneo, has estimated that creditors were owed approximately $3.3 billion following its collapse.