December 2, 2022

Sapiensdigital

Sapiens Digital

SEC

CFTC, SEC investigate if bankrupt 3AC misled investors, failed to register business

The Commodity Futures Trading Commission and the Securities and Exchange Commission of the U.S. are investigating whether bankrupt crypto hedge fund Three Arrows Capital (3AC) misled investors about its balance sheet and failed to register with the two agencies, according to a Bloomberg report which cites two people familiar with the matter.

See related article: US Treasury says Congress needs to act to mitigate crypto risk to stability

Fast facts

  • The Singapore-founded firm filed for Chapter 15 bankruptcy in a federal bankruptcy court in the Southern District of New York in July, after a British Virgin Islands Court reportedly ordered the firm into liquidation in late June.
  • The locations of company cofounders Su Zhu and Kyle Davies are unknown and court-appointed liquidators have recently requested a court grant them permission to serve subpoenas via email and Twitter.
  • Three Arrows Capital was one of many companies damaged by exposure to the US$40 billion collapse of stablecoin project TerraLUNA in May, with several others also being forced into bankruptcy.
  • In the U.S., 3AC was used as an example in a Financial Stability Oversight Council report on “Digital Asset Financial Stability Risks and Regulation” as “illustrating the vulnerabilities presented by extensive interconnections among crypto-asset market participants.”
  • The report found that left unregulated, the crypto industry may pose risks to the broader financial stability of the U.S.
  • The Monetary Authority of Singapore had previously reprimanded the firm in June for providing misleading information and ignoring limits on how many assets under management the company was permitted to manage with the license it held in the country. 

See related article: Three Arrows Capital files for Chapter 15 bankruptcy