The liquidators of Three Arrows Capital (3AC) have recently taken legal action against TerraForm Labs, a bankrupt digital assets company co-founded by Do Kwon, in pursuit of a $1.3 billion lawsuit. The lawsuit stems from the allegations that TerraForm Labs manipulated the market for Luna and TerraUSD, resulting in artificially inflated prices for these tokens. This alleged manipulation led to significant losses for 3AC, with their investments in these assets completely wiped out. The collapse of these tokens not only erased 3AC’s investments but also caused substantial losses in the fund’s other digital holdings.
In January 2022, 3AC acquired $190 million worth of Luna as part of a broader $1 billion deal. However, a massive sell-off of TerraUSD a few months later triggered a sharp decline in both TerraUSD and Luna, significantly reducing the value of 3AC’s investment. By April 2022, 3AC’s Luna holdings were valued at approximately $462 million, but by May 14, the value had plummeted to just over $2,700. Simultaneously, the net value of 3AC’s other digital assets dropped by about $858 million.
TerraForm Labs filed for Chapter 11 bankruptcy in January and is currently in the process of liquidation after being found liable for fraud. The liquidators appointed by the British Virgin Islands court are actively pursuing claims against TerraForm Labs, as well as 3AC’s founders, Su Zhu and Kyle Davies. It is uncertain how much money can be recovered through these legal actions and the liquidation process.
Three Arrows Capital was once a prominent figure in the crypto hedge fund industry but saw its downfall following the collapse of LUNA. Liquidators from the consulting firm Teneo were appointed to recover assets in an effort to repay the hedge fund’s creditors. In addition to the lawsuit against TerraForm Labs, the liquidators have initiated several other actions to recover funds. Notably, Su Zhu, one of the founders of 3AC, has been attempting to sell off assets, including prestigious properties, amidst the ongoing liquidation process.
Following the crash of the LUNA project, TerraForm’s co-founder Do Kwon was arrested in Montenegro last year and now faces charges in both the United States and South Korea. The legal troubles and liabilities surrounding Three Arrows Capital, TerraForm Labs, and their respective founders highlight the risks and challenges faced in the volatile world of digital asset investing.
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