The Legal Battle of Three Arrows Capital Against TerraForm Labs

The defunct crypto hedge fund, Three Arrows Capital (3AC), is currently embroiled in a $1.3 billion lawsuit against TerraForm Labs, a bankrupt digital assets company co-founded by Do Kwon. The liquidators of 3AC are accusing TerraForm Labs of manipulating the market for Luna and TerraUSD, resulting in artificially inflated prices for these tokens. This alleged manipulation led to heavy investments by 3AC in these assets, ultimately resulting in significant losses for the fund.

In January 2022, 3AC invested $190 million in Luna as part of a larger deal worth $1 billion. However, a massive sell-off of TerraUSD months later caused a sharp decline in both TerraUSD and Luna, drastically reducing the value of 3AC’s investment. By the end of April 2022, 3AC’s Luna holdings were valued at $462 million, but by May 14, the value had plummeted to just over $2,700. Additionally, the fund’s other digital assets saw a drop in value of approximately $858 million.

TerraForm Labs filed for Chapter 11 bankruptcy in January and is currently in the process of liquidation after being found guilty of fraud. The outcome of the liquidation process and the potential recovery of funds remain uncertain. Three Arrows Capital (3AC), once a prominent player in the crypto hedge fund industry, experienced a downfall following the collapse of LUNA. A British Virgin Islands court appointed liquidators from Teneo to recover assets for 3AC’s creditors. In addition to the lawsuit against TerraForm Labs, the liquidators are pursuing claims against 3AC’s founders, Su Zhu and Kyle Davies, as part of their efforts to recover funds.

In the midst of the legal battle, sources revealed that Su Zhu, one of 3AC’s founders, has been attempting to sell off some of his assets, including prestigious properties, during the liquidation process. Moreover, Do Kwon, the co-founder of TerraForm Labs, was arrested in Montenegro last year following the collapse of the LUNA project. He now faces criminal charges in both the United States and South Korea, adding another layer of complexity to the ongoing legal saga.