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Highlights
- FTX lawyers attributed 3AC's downfall to its extensive spot and margin trading.
- After the Terra LUNA crash in June 2022, 3AC allegedly ignored margin calls, that triggered $82 million in liquidation.
- 3AC must file its response by July 11, with a non-evidentiary hearing scheduled for August 12.
Disgraced Sam Bankman-Fried‘s defunct crypto exchange FTX has outrightly rejected the massive $1.53 billion claims by Three Arrows Capital (3AC), the crypto hedge fund that collapsed after the Terra LUNA crash.
This comes just within months of the Delaware bankruptcy court judge allowing 3AC to increase its bankruptcy claims by 10-fold, from $120 million to $1.53 billion. In a court filing last Friday, FTX lawyers rejected the claims, stating that 3AC’s losses were self-inflicted and the claims should be “disallowed in its entirety”.
FTX Lawyers Say 3AC’s Demands Are Unreasonable
In June 2023, 3AC filed the claim of $120 million to the FTX bankruptcy estate. However, last year in November 2024, after securing permission from the Delaware court judge, it raised the amount by 10-fold to $1.53 billion. The liquidators claimed that FTX controlled $1.53 billion in assets belonging to 3AC, which were liquidated in 2022 to cover liabilities, ultimately accelerating 3AC’s collapse.
They contended that the transactions were avoidable and accused FTX of delaying the release of information that might have brought the liquidation to light sooner.
The recent pushback from lawyers came as the crypto exchange began its $5 billion distribution to creditors.
FTX lawyers have slammed the defunct hedge fund 3AC, stating that they are trying to shift the blame for their collapse onto the estate. The lawyers stated that the claim is based on “an unreasonable and unsupportable starting premise, inaccurate figures, and blindness to the actual events that occurred.”
Lawyers Explain What Led to 3AC’s Collapse
According to FTX, the Three Arrows Capital’s collapse was primarily due to its own extensive spot and margin trading activities, partly funded by a $120 million line of credit from FTX. While acknowledging an $82 million forced liquidation, FTX’s legal team stated that it was per the contract under the terms of the credit and margin agreements. As a result, the exchange isn’t responsible for 3AC’s downfall.
In June 2022, following the Terra collapse, Three Arrows Capital’s account reportedly dropped below the $240 million margin requirement. Rather than addressing the margin requirement for the account, 3AC allegedly ignored FTX’s attempts to communicate and proceeded to withdraw $18 million worth of Ethereum (ETH). In response, FTX liquidated the account, recovering $82 million.
Moving forward, the Three Arrows Capital has to submit its response by July 11, with a non-evidentiary hearing scheduled for August 12. The lawyers representing FTX stated that 3AC is looking “to extract value from the Debtors’ estates at the expense of legitimate creditors in order to salvage their own failed liquidation proceedings”.
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