In a recent court filing, bankrupt cryptocurrency exchange FTX contested a $1.53 billion recovery claim by Three Arrows Capital, asserting that the hedge fund's risky trading strategy led to its downfall. FTX's lawyers argued that 3AC's own actions, rather than any wrongdoing by FTX, resulted in a substantial decline in the value associated with 3AC's accounts in June 2022.
The filing stated that 3AC had made large bets on cryptocurrency price increases using borrowed funds, and when prices plummeted, 3AC liquidated its risky bets and withdrew assets from FTX. The Delaware court overseeing FTX's bankruptcy had previously allowed 3AC's liquidators to expand their claim from $120 million to $1.53 billion, citing new evidence that FTX had liquidated $1.53 billion of 3AC's assets before the hedge fund's liquidation proceedings began. However, FTX's lawyers countered that the liquidation was done to satisfy a loan to FTX, although 3AC's lawyers disputed this claim due to lack of documentation.
The bankruptcy court ultimately sided with 3AC, finding insufficient evidence to support FTX's loan claim. In their latest filing, FTX's estate lawyers claimed that the actual value of assets in 3AC's accounts on June 12, 2022, was only $284 million, comprising $1.017 billion in digital assets and a negative $733 million in US dollars. They also stated that the first and only liquidation of 3AC's assets, which occurred on June 14, 2022, involved swapping $82 million in crypto for cash, a move that allegedly benefited 3AC rather than FTX.
FTX's lawyers argued that 3AC's liquidators have inflated the value of assets associated with 3AC's accounts by over $1.2 billion and ignored the fact that the decline in account value resulted from market price declines and 3AC's own withdrawals. The lawyers asserted that 3AC's claim for $1.53 billion lacks legal and factual merit, and that the hedge fund is owed nothing. FTX, once one of the largest cryptocurrency exchanges globally, filed for bankruptcy protection in November 2022 and has since started distributing $5 billion to its creditors.
The collapse of 3AC in June 2022 was part of a larger domino effect that also affected major cryptocurrency companies such as Voyager, Celsius, BlockFi, and Genesis.