FTX’s Bankruptcy Lawyers Fight Against $1.53 Billion Claim by Three Arrows Capital
FTX’s bankruptcy lawyers are vehemently opposing a $1.53 billion claim filed by failed crypto hedge fund Three Arrows Capital (3AC), labeling the demand as “illogical” and cautioning that it would unjustly deplete funds from FTX’s rightful creditors.
In a recent court filing on June 20, FTX’s legal team urged a Delaware bankruptcy judge to dismiss 3AC’s entire claim, contending that the trading firm’s alleged losses were a result of their own risk-taking and failure to meet margin calls, rather than any wrongdoing on the part of FTX.
Margin Trade Breach
The dispute revolves around margin trades that 3AC executed on FTX’s exchange in 2022. At that time, 3AC, which had borrowed extensively across the crypto sector, utilized a $120 million credit line from FTX to finance substantial positions.
FTX asserts that in June 2022, 3AC breached margin requirements following the collapse of the TerraUSD stablecoin, which triggered a broader market crisis. When FTX notified 3AC that their account had fallen below the required collateral thresholds, the firm allegedly did not respond for over six hours and instead withdrew $18 million worth of Ethereum (ETH), exacerbating the shortfall.
Facing what they described as a critical credit breach, FTX liquidated 3AC’s account, recuperating $82 million. FTX’s legal team argues that this liquidation was not only permitted by the contract but also averted a more substantial deficit in the estate’s financials.
Dismissing 3AC’s Claim
FTX’s legal team criticized 3AC for basing their claim on an “unreasonable and unsupported premise” in order to inflate their initial $120 million claim by over 10 times. They presented testimony from Steven P. Coverick, a managing director at Alvarez & Marsal, who analyzed the trades and concluded that the forced sale was warranted to prevent further losses.
Additionally, the estate submitted an expert opinion from Stephen Atherton, King’s Counsel from the British Virgin Islands, debunking 3AC’s legal theory under BVI law as flawed.
The lawyers argued that 3AC’s attempt to reclaim billions is an effort to salvage their failed liquidation process and shift blame onto FTX’s remaining creditors who are still awaiting repayment following the exchange’s collapse in November 2022.
Future Legal Proceedings
The ongoing legal battle is just one facet of the complex web of claims and counterclaims stemming from the downfall of both crypto firms. 3AC is required to file their formal response by July 11, with a non-evidentiary hearing scheduled for August 12 in Delaware. As of now, lawyers for 3AC have not responded to requests for comment.
In conclusion, the clash between FTX and 3AC underscores the intricate legal intricacies and financial stakes involved in the aftermath of these high-profile collapses within the crypto industry.