The liquidators of the defunct crypto hedge fund Three Arrows Capital (3AC) are seeking $1.3 billion in compensation from Terraform Labs after suffering losses due to the crash of Luna and TerraUSD tokens in 2022. The lawsuit filed by the liquidators is part of 3AC’s efforts to recover funds for its creditors following the hedge fund’s liquidation. Terraform Labs allegedly persuaded 3AC to purchase Luna and TerraUSD tokens by artificially inflating their prices, leading to substantial losses for the fund.
According to court documents, 3AC held around $462 million worth of Luna at the end of April 2022, but the value plummeted to over $2,700 by mid-May 2022 after a massive sell-off. In addition to the losses from Luna and TerraUSD tokens, the net value of other digital holdings at 3AC fell by $858 million during the same period. The liquidators, appointed by a British Virgin Islands court from consulting firm Teneo, estimated that 3AC owed creditors around $3.3 billion.
In December of the previous year, the court froze approximately $1.14 billion in assets belonging to 3AC’s co-founders, Su Zhu and Kyle Davies, prohibiting them from transferring or selling the assets. The compensation amount that Terraform Labs will be required to pay to 3AC is still unknown. Terraform, the blockchain protocol created by Do Kwon, announced its cessation of operations in June after reaching a settlement with the SEC. Kwon, who was arrested in Montenegro and is facing charges in the US and South Korea, was ruled by a Montenegro court to be extradited to South Korea. The Terra contagion affected various other crypto companies, including lenders like Celsius, Vauld, Voyager, and exchanges like FTX.
Overall, the liquidators of the defunct crypto hedge fund Three Arrows Capital are seeking $1.3 billion in compensation from Terraform Labs following losses incurred during the crash of Luna and TerraUSD tokens in 2022. The lawsuit filed by the liquidators is part of efforts to recover funds for creditors after 3AC’s liquidation. Terraform Labs allegedly persuaded 3AC to purchase tokens by artificially inflating prices, resulting in significant losses for the fund. 3AC’s net value of digital holdings declined by $858 million during the same period. The liquidators estimated that 3AC owed creditors around $3.3 billion, prompting a freeze on co-founders’ assets and unknown compensatory amounts. Terraform, founded by Do Kwon, ceased operations in June after settlement with the SEC and Kwon’s legal issues, with a Montenegro court ruling his extradition to South Korea. Various crypto companies were affected by the Terra contagion.
