The downfall of Three Arrows Capital: A cautionary tale of hubris and financial mismanagement

The downfall of Three Arrows Capital: A cautionary tale of hubris and financial mismanagement

The recent arrest and imprisonment of Su Zhu, co-founder of defunct Singaporean hedge fund Three Arrows Capital (3AC), and his business partner Kyle Livingston Davies, have sent shockwaves through the cryptocurrency industry. Once managing over $10 billion in digital assets, 3AC’s collapse in June 2022 left creditors with over $3.5 billion in claims. This article delves into the events leading up to their arrests, their subsequent legal woes, and the impact on their entrepreneurial ventures.

The situation took a dramatic turn when Singaporean courts issued an arrest warrant for Zhu after his deliberate failure to comply with a court order. The order compelled him to cooperate with the liquidator’s investigations and account for his activities as one of the founders of 3AC and its former investment manager. Zhu was apprehended at Singapore’s Changi International Airport while attempting to flee the country, resulting in a four-month prison sentence for the breach.

Davies, also a co-founder of 3AC and a naturalized Singaporean citizen, faced similar consequences. He was sentenced to four months imprisonment for contempt of court, although his current whereabouts remain unknown. The Monetary Authority of Singapore barred both Zhu and Davies from conducting enterprise investment activity in the city-state for nine years due to regulatory violations, including exceeding 3AC’s statutory assets under management limit.

The bankruptcy of 3AC and its ripple effect

The bankruptcy filing of 3AC in July 2022 marked the beginning of a chain reaction that reverberated throughout the cryptocurrency industry. A series of failed leveraged trades on the Terra ecosystem wiped out 3AC’s assets and left creditors with massive claims. The subsequent bankruptcy of 3AC’s counterparties, including Celsius, Voyager, and FTX, further exacerbated the situation. Notably, a clerical error had halted over a year of bankruptcy proceedings, adding insult to injury for the creditors.

The rise of alternative entrepreneurial ventures

Following the collapse of 3AC, both Zhu and Davies embarked on alternative entrepreneurial ventures. Davies established a restaurant in Dubai, while Zhu converted his $36 million luxury Yarwood Homestead in Singapore into an eco-farm. The farm, owned by Zhu’s wife Evelyn Tan through her company Abundunt Cities, focuses on ecological design and agroecology. It produces local vegetables, herbs, fruits, fish, chickens, and ducks.

The downfall of OPNX and its impact on Zhu and Davies

In an attempt to salvage their reputation and finances, Zhu and Davies launched the novel exchange OPNX, an exchange for trading bankruptcy claims on fallen crypto companies. Despite an initial investment of $25 million and an optimistic launch, the platform failed to gain traction. Zhu’s arrest and Davies’ indictment sent shockwaves through the OPNX community, resulting in a 60% drop in the Open Exchange Token’s value in a single day. The token has lost a staggering 79% of its value in the past month, raising concerns about its future viability.

The ongoing legal proceedings and asset recovery

The legal proceedings surrounding 3AC’s bankruptcy and the subsequent actions of Zhu and Davies are still ongoing. The liquidators appointed by Teneo have prioritized the recovery of assets and the maximization of returns for creditors. The seizure and auction of nonfungible tokens owned by 3AC at Sotheby’s have netted a total of $13.4 million. However, the ultimate outcome and restitution for creditors remain uncertain.

The downfall of Three Arrows Capital serves as a cautionary tale for the cryptocurrency industry. It highlights the potential consequences of hubris and financial mismanagement, as well as the need for regulatory compliance. Zhu and Davies’ arrests and imprisonment serve as a stark reminder that no individual or company is above the law. As the legal proceedings continue, the industry will closely follow the outcomes and draw lessons from this saga. Only time will tell what lies ahead for the troubled legacy of Three Arrows Capital.


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