Three Arrows Capital (3AC) has achieved a significant legal victory in its case against FTX. A U.S. bankruptcy court has approved 3AC’s request to raise its claim in FTX’s bankruptcy from $120 million to $1.53 billion.
This increase is based on new evidence showing that 3AC had much larger financial dealings with FTX than previously reported. The expanded claim includes allegations of breach of contract, breach of fiduciary duty, and unjust enrichment.
The ruling came from the United States Bankruptcy Court for the District of Delaware. It favored 3AC’s liquidators, Russell Crumpler and Christopher Farmer, who initially filed their claim in June 2023.
They sought recovery linked to a $120 million loan from FTX. However, investigations revealed that FTX had liquidated $1.53 billion in assets belonging to 3AC to cover $1.3 billion in liabilities shortly before 3AC’s liquidation.
The liquidators faced many challenges during their investigation. They struggled with a lack of proper records from 3AC, minimal cooperation from its founders, and delays in obtaining documents from FTX. Many crucial pieces of evidence only emerged in late 2023 and early 2024, long after FTX filed for bankruptcy in November 2022.
FTX opposed the claim expansion, arguing it was submitted too late and altered the bankruptcy process. However, the court rejected these objections. Judge John T. Dorsey ruled that the delay was largely due to FTX’s failure to provide necessary documents. He noted that the liquidators had limited information when they first filed the claim and that new evidence justified the increase.
This ruling is a critical step for 3AC in recovering funds lost during the FTX collapse. The hedge fund was one of the largest crypto firms affected by FTX’s downfall amid allegations of fraud and mismanagement.
As the case progresses, it remains uncertain how this ruling will impact the bankruptcy process and creditor repayments. Meanwhile, former FTX CEO Sam Bankman-Fried is seeking a presidential pardon while facing skepticism about his chances. The unfolding legal battles will significantly influence the future of crypto bankruptcies.
