A recent ruling by a US bankruptcy court has favored Three Arrows Capital (3AC), allowing the failed crypto hedge fund to increase its claim against the collapsed exchange FTX to a staggering $1.53 billion. This decision marks a significant increase from the initial claim of $120 million sought by 3AC’s liquidators.
The legal battle between 3AC and FTX has been ongoing, with 3AC’s liquidators initially filing their $120 million claim in June 2023. They argued that FTX had improperly seized assets before the hedge fund collapsed. However, the liquidators later revised their claim, alleging that $1.53 billion of assets held by 3AC on the FTX platform were liquidated just before the commencement of the 3AC liquidation to satisfy $1.3 billion in liabilities to FTX.
FTX’s bankruptcy estate contested these claims, stating that the revisions came too late and introduced new claims unrelated to the original filing. The exchange’s legal team also argued that approving the amendment would disrupt its restructuring process and create an unfair financial burden. They claimed that their bankruptcy reorganization strategy was based on the assumption that 3AC’s claim would remain unchanged.
Despite FTX’s objections, Judge John T. Dorsey of the US Bankruptcy Court for the District of Delaware dismissed them, stating that FTX failed to provide sufficient evidence to support their claims. The court also noted that 3AC’s original filing had already hinted at the possibility of further legal action.
In addressing FTX’s claims that 3AC intentionally delayed its filing, the court found no evidence of bad faith. Judge Dorsey placed some of the blame on FTX, citing the exchange’s lack of transparency and cooperation. He criticized FTX for restricting access to key individuals and only providing raw transaction data, making it difficult for 3AC’s liquidators to assess their financial losses promptly.
Overall, the court ruling in favor of Three Arrows Capital paves the way for the hedge fund to pursue its increased claim against FTX. The legal battle between the two parties continues to unfold, shedding light on the complexities of the cryptocurrency industry and the challenges faced by stakeholders in cases of bankruptcy and asset liquidation.