Su Zhu and Kyle Davies, the co-founders of crypto hedge fund Three Arrows Capital (3AC), need to prepare themselves for subpoenas, as should the rest of the leadership.
This is because liquidators have now been granted permission for demanding financial records, documents and communications associated with the bankrupt company.
On Tuesday morning, the judge overseeing the bankruptcy case of the crypto hedge funds gave approval for the issuing of the subpoenas.
The court order dictates that liquidators would now be able to ask for any recorded information, whether it is documented, papers, records, or books that are related to the financial and property affairs of the hedge fund since 2012 when 3AC had been founded.
This year in July, Three Arrows Capital filed for bankruptcy protection under the designation Chapter 15, which allows courts in the United States and British Virgin Islands to cooperate.
The crypto hedge fund was based in the British Virgin Islands. While it was not the only reason for the bankruptcy, the co-founders of 3AC had said that they had suffered losses of $200 million due to the collapse of the Terra ecosystem.
The algorithmic stablecoin of the Terra blockchain called TerraUSD (UST) had lost its peg with the dollar and had dropped to zero.
When UST crashed, there had been rumors about 3AC’s exposure to Terra and this prompted Derebit, FTX and BitMEX to liquidate their positions with the crypto hedge fund.
The company had used leveraged positions frequently, which meant that it was permitted to make trades bigger than the funds it currently had.
This strategy is risky, but it can give potential profits a boost. In case of a risky position, traders are asked to add more funds by exchanges for covering their margin.
This is referred to as a ‘margin call’ and when companies cannot meet a margin call, the funds are liquidated for covering the losses.
A default notice had been issued to 3AC by Voyager Digital, as the former owed $600 million to the latter. A few days later, Voyager also filed for bankruptcy.
The 3AC co-founders
Once the liquidation process began, the two co-founders of 3AC seemed to vanish, but since FTX’s bankruptcy, the two of them have become active on social media.
The former CEO of FTX and its founder, Sam Bankman-Fried had criticized Terra and Three Arrows Capital.
He had also been vocal about stopping the crypto contagion that had resulted after the collapse of Terra, with 3AC, Voyager and BlockFi being impacted.
Now, it appears that the co-founders of 3AC are just returning the favor where Sam Bankman-Fried is concerned.
Zhu alleged via a tweet that SBF had shorted the Bitcoin and Ethereum deposits of clients for FTX and Solana tokens.
He said that this was actually a crime against the entire crypto world. As for Davies, the other co-founder, he said that 3AC trades were ‘hunted’ by FTX and Alameda Research, its sister company.
He also called out the supporters of FTX who had been fans of SBF and had criticized 3AC.
The subpoena issued against the two co-founders covers communication between them, the third director of the company Mark James Dubois, Kelly Kaili Chin, Davies’ wife who had lent money to the company and the company’s NFT fund Starry Night Capital and Vincent Van Dough, its curator.
Others also mentioned are DeFinance capital and Arthur Cheong, its manager and a company owned by Davies and Zhu named Tai Ping Shin, which is based in the Cayman Islands.