FTX Slams 3ACs $1.53B Claim: No Liability for Failed Crypto Hedge Fund Strategy
The cryptocurrency exchange FTX has recently argued in a court filing that it should not be held responsible for paying a massive $1.53 billion recovery claim filed by the crypto hedge fund Three Arrows Capital (3AC). According to FTX's lawyers, 3AC's "own risky trading strategy caused its collapse, and its own account activity, not any action by FTX, resulted in a significant decline in the value associated with the 3AC Accounts in June 2022."
The court filing explains that 3AC bet heavily on cryptocurrency prices increasing using cash it did not have. When prices instead plummeted, 3AC proceeded to liquidate its risky bets and withdraw assets from FTX. FTX's lawyers argue that the liquidation of 3AC's assets on its platform was carried out to satisfy a loan to FTX, but 3AC's lawyers pushed back, arguing that the loan to FTX wasn't sufficiently documented or substantiated. The bankruptcy court sided with 3AC, finding insufficient evidence to support FTX's claim of a loan.
In the most recent filing, lawyers for FTX's estate say that on June 12, 2022, the actual value of assets in 3AC's accounts was only $284 million, with $1.017 billion in digital assets and negative $733 million in US dollars. They also argue that the "first and only" liquidation of 3AC's assets ordered by FTX was on June 14, 2022, and swapped $82 million in crypto for cash, a move they say "actually benefitted 3AC (not FTX)."
FTX's lawyers argue that the Joint Liquidators of 3AC have grossly inflated the actual value of assets associated with the 3AC Accounts by more than $1.2 billion and ignored that the entire loss in account value resulted from market price declines and 3AC's own withdrawals, not any action taken by FTX. They add that the Joint Liquidators are asking the court to force other Exchange customers and creditors to foot the bill for 3AC's failed strategy by asserting illogical and baseless claims for $1.53 billion, which is a false premise that lacks any legal or factual merit.
FTX, which was once one of the largest crypto exchanges in the world, filed for bankruptcy protection shortly after its collapse in November 2022. The exchange's recovery trust started distributing $5 billion to FTX creditors in May.
3AC collapsed in June 2022, one month after the collapse of the Terra/LUNA ecosystem, starting a domino-like collapse of major crypto companies including Voyager, Celsius, BlockFi, and Genesis. 3AC has until July 11 to file an objection before the hearing set for August 12.
The legal battle between FTX and 3AC highlights the complexities of cryptocurrency trading and the potential consequences of risky trading strategies. As the cryptocurrency market continues to evolve, it is important for investors to be aware of the risks involved and to seek professional advice before making any investments.
