Liquidators of Three Arrows Capital Seek $1.3 Billion from Terraform Labs

The claim centers on allegations of market manipulation that led to significant losses for 3AC during the 2022 Terra crash.

Liquidators of the now-defunct hedge fund, Three Arrows Capital (3AC), have filed a $1.3 billion claim against Terraform Labs, the company behind the TerraUSD (UST) and Luna (LUNA) tokens. Filed in the U.S. Bankruptcy Court for the District of Delaware, the claim alleges that Terraform Labs, co-founded by Do Kwon, manipulated the market for LUNA and UST, artificially inflating prices and inducing 3AC to make substantial investments. This alleged scheme contributed to 3AC’s massive losses when the Terra ecosystem collapsed in 2022.

Three Arrows Capital, a prominent cryptocurrency hedge fund, was heavily impacted by the Terra crash, leading to its downfall along with other crypto firms. The collapse of UST and LUNA, which wiped out $40 billion in market value, also played a significant role in the broader downturn of the crypto market at that time. In January 2022, 3AC had invested $190 million in Luna as part of a $1 billion deal. By late April of that year, the fund's Luna holdings were valued at $462 million. However, following a sharp sell-off in TerraUSD, that value plummeted to just $2,700 by mid-May.

The liquidators, appointed by a British Virgin Islands court, are working to recover assets for 3AC’s creditors. This claim against Terraform Labs is a significant part of those efforts. The U.S. Securities and Exchange Commission (SEC) recently announced that Terraform Labs and Do Kwon have agreed to a $4.5 billion settlement over civil fraud charges related to the Terra collapse.

Terraform Labs filed for Chapter 11 bankruptcy in January 2023, and Do Kwon was arrested in Montenegro later that year. He faces multiple charges in both the U.S. and South Korea, and a Montenegro court has ruled for his extradition to South Korea.

photo source / Blockonome