A US bankruptcy court has ruled in favor of Three Arrows Capital (3AC), allowing the failed crypto hedge fund to increase its claim against the collapsed exchange FTX to $1.53 billion.
This decision significantly raises the initial $120 million claim sought by 3AC’s liquidators.
Legal battle
According to the March 13 court filing, 3AC’s liquidators first filed their $120 million claim in June 2023, arguing that FTX had improperly seized assets before the hedge fund collapsed.
However, over a year later, they revised their claim, claiming:
“Just two weeks before the commencement of the 3AC Liquidation, the $1.53 billion of assets that 3AC had on the FTX platform were liquidated to satisfy $1.3 billion in liabilities to FTX.”
FTX’s bankruptcy estate fought against these claims, contending that the revisions came too late and introduced new claims unrelated to the original filing.
The exchange’s legal team also claimed that approving the amendment would disrupt its restructuring process and create an unfair financial burden. They insisted that their bankruptcy reorganization strategy had been based on the assumption that 3AC’s claim would remain unchanged.
Court ruling
However, Judge John T. Dorsey of the US Bankruptcy Court for the District of Delaware dismissed FTX’s objections, stating that while the exchange’s concerns had some merit, it failed to present sufficient evidence.
The court also pointed out that 3AC’s original filing had already indicated the possibility of further legal action.
The ruling also addressed FTX’s claims that 3AC intentionally delayed its filing. The court found no evidence of bad faith, pointing out that 3AC’s team faced significant challenges, including missing records, limited access to FTX’s internal systems, and a lack of cooperation from key individuals.
Judge Dorsey placed part of the blame on FTX, stating that the exchange’s lack of transparency made it difficult for 3AC to assess its financial losses promptly.
He criticized FTX for restricting access to key individuals and only providing raw transaction data, making it harder for liquidators to reconstruct the complete picture. The Judge stated:
“[FTX] gave the Liquidators only the raw data regarding the individual 3AC transactions on the FTX platform, and restricted access to the individuals who might be able to help put the puzzle together. [Their] assertions now that the Liquidators should be penalized for failing to assemble the puzzle faster is not well taken.”
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