Three Arrows Capital Under Investigation by SEC and CFTC After Bankruptcy

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American regulators have launched investigations into the activities of bankrupt Singaporean hedge fund Three Arrows Capital (3AC), with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), seeking to identify the reasons and responsible persons behind the crypto-focused firm’s collapse.

As part of their activities, the two U.S. agencies are now working to determine whether Three Arrows Capital violated rules by misleading its investors about the contents of its balance sheet and not registering with the regulators, two persons familiar with the matter told Bloomberg.

The two agencies are yet to release official confirmations of their respective investigations into the hedge fund and its financial woes.

As part of the company’s bankruptcy proceedings, earlier this month, a number of non-fungible tokens (NFTs) collected by Starry Night Capital, an NFT fund set up by 3AC, were moved to a new wallet by Teneo, the consultancy leading the hedge fund’s bankruptcy proceedings.

In June 2022, the Monetary Authority of Singapore (MAS) reprimanded the hedge fund for providing false information to the regulator, and exceeding the assets under management (AUM) threshold that is allowed for a registered fund management company (RFMC) under the nation’s law. The agency said it has been investigating the business since last year.

“The reprimand relates to contraventions by TAC which occurred prior to its notification to MAS in April 2022. MAS has been investigating these contraventions since June 2021,” the Singaporean regulator said in a statement. “In light of recent developments which call into question the solvency of the fund managed by TAC, MAS is assessing if there were further breaches by TAC of MAS’ regulations.”

Last July, the Singapore-based business filed for bankruptcy, declaring its business had “collapsed in the wake of extreme fluctuations in cryptocurrency markets.” Among others, 3AC reported major losses as a result of the collapse of the terraUSD stablecoin in May 2022.

In August 2022, the fund’s liquidators obtained the permission of a Singaporean court to gain access to key records, obtaining more information about the assets of the collapsed firm. Three Arrows is estimated to owe its creditors more than USD 2.8bn in unsecured claims.

3AC’s two co-founders, Su Zhu and Kyle Davies, have made efforts to stay under the radar since their company’s bankruptcy. Despite this, Zhu was found to be trying to sell a house he bought in Singapore last year for about SGD 48.8 million ($34.3 million).

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