Liquidators seek $1.3b from TerraForm Labs over 3AC losses

Liquidators of the defunct crypto hedge fund Three Arrows Capital are reportedly pursuing a claim of at least $1.3 billion from TerraForm Labs. 

According to an Aug. 12 report by Bloomberg, the claim stems from 3AC’s losses following the 2022 collapse of the TerraUSD stablecoin and Luna (LUNA) token. 

The report indicated that 3AC’s court-appointed liquidators, Teneo, are accusing TerraForm of manipulating the LUNA and UST markets, artificially inflating their values before their prices plummeted.

Per court filings quoted by Bloomberg, Teneo said 3AC invested heavily in the two tokens following the alleged manipulation, a decision it says ultimately caused 3AC severe financial losses. In addition to the direct losses from the failed tokens, Teneo alleged that the Terra crash also adversely affected other crypto assets held by 3AC.

The company was once a prominent player in the crypto space; however, it collapsed shortly after TerraUSD and Luna crashed, alongside several other major crypto firms.

Teneo is also looking to reclaim funds from Three Arrows’ founders, Su Zhu and Kyle Davies, among others.

Earlier in the year, Davies gave an extensive interview to crypto journalist Laura Shin, where he said he was not sorry about his company’s bankruptcy. 

3A, which was registered in Singapore, filed for bankruptcy in July 2022 after it failed to meet demands from its creditors following a massive market downturn triggered by the Terra collapse. A year before, it boasted a $10 billion crypto portfolio, with the amount dropping to about $3 billion at the time the company was declaring insolvency.

3AC’s claim against TerraForm Labs is the latest chapter in the organization’s legal woes resulting from the implosion of its cryptocurrencies. In June, it reached a $4.47 billion settlement with the U.S. Securities and Exchange Commission after a jury found the company and its founder, Do Kwon, legally liable for the $60 billion crash.

The SEC had initially asked for $5.3 billion in fines from both Mr. Kwon and TerraForm, made up of $4.7 billion in disgorgement and $520 million in civil penalties. 

Do Kwon is currently under house arrest in Montenegro, awaiting extradition to either the United States or South Korea, where he faces lengthy prison sentences over his role in Terra’s fall.