Report: British Virgin Islands Court Freezes 3AC Assets Worth Over $1 Billion

A court in the British Virgin Islands has issued a freeze order on assets worth over $1 billion belonging to the founders of Three Arrows Capital, a defunct crypto hedge fund. The order also applies to Kelly Chen, the wife of co-founder Kyle Davies, and prohibits the transfer or sale of their digital assets. The liquidator estimates the value of the frozen assets to be $1.14 billion, while creditors are owed over $3 billion. This development follows the filing for bankruptcy protection by Three Arrows Capital in an apparent attempt to block the seizure of assets. In addition, the co-founders have faced allegations of evading subpoenas and attempts to frustrate the liquidation process. One co-founder, Su Zhu, has already been arrested in Singapore and is serving a jail sentence.

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Freeze Order Also Applies to Kyle Davies’ Wife

Digital assets worth over $1 billion belonging to the founders of the now-defunct crypto hedge fund Three Arrows Capital (3AC) have been frozen by a court in the British Virgin Islands. According to the firm’s liquidator Teneo, the court’s decision bars co-founders Su Zhu and Kyle Davies, as well as the latter’s wife Kelly Chen, from transferring or liquidating the digital assets.

The liquidator estimates the frozen assets to be worth $1.14 billion while creditors are owed more than $3 billion. Since the collapse of their firm, 3AC co-founders have been accused of attempting to frustrate the liquidation process by filing for Chapter 15 bankruptcy protection in July 2022. The objective of the filing was reportedly to block the liquidator and creditors from seizing the firm’s assets in the United States.

The co-founders have also faced allegations of evading subpoenas and in June this year, the liquidator asked the court to impose a fine of $10,000 per day on the non-complying Davies. Remarking on the British Virgin Islands court freeze order, the liquidator said:

“The worldwide freezing order has been sought in connection with claims that are being pursued by the liquidators that allege, amongst other things, that the founders should be held responsible for causing 3AC’s position to deteriorate by an amount that is equivalent to the value of the freezing orders sought.”

After the collapse of 3AC, both Zhu and Davies went into hiding but the former’s luck ran out in September when he was arrested in Singapore and was subsequently handed a four-month jail sentence.

Background

In December of 2023, a court in the British Virgin Islands issued an order to freeze assets worth over $1 billion belonging to the founders of Three Arrows Capital, a formerly prominent crypto hedge fund. This freeze order also extended to Kyle Davies’ wife, Kelly Chen, preventing them from transferring or selling any of the co-founders’ digital assets. The decision came after the firm’s liquidator, Teneo, determined that the co-founders had attempted to frustrate the liquidation process.

Three Arrows Capital had been hit with significant financial troubles, with creditors owed over $3 billion. In an effort to protect their assets, the co-founders filed for Chapter 15 bankruptcy protection in July 2022. The objective of this filing was to block the seizure of the firm’s assets in the United States.

Chapter 15 Bankruptcy Protection

The co-founders of Three Arrows Capital, Kyle Davies and Su Zhu, filed for Chapter 15 bankruptcy protection in July 2022. This particular chapter of the bankruptcy code deals with cases involving foreign debtors. By filing for this form of protection, the co-founders aimed to prevent the liquidator and creditors from seizing the firm’s assets in the United States.

The objective of blocking the seizure of assets in the US was crucial for protecting the co-founders’ stake in the firm and any potential future earnings. This move allowed them to buy more time and maintain control over their assets during the liquidation process.

Allegations of Evading Subpoenas

One of the challenges faced by the liquidator in the Three Arrows Capital case was the co-founders’ alleged evasion of subpoenas. In June of a particular year, the liquidator requested the court to impose a fine of $10,000 per day on the non-complying co-founder Kyle Davies. This penalty was intended to address the co-founder’s non-compliance with the subpoenas.

The co-founders’ evasion of subpoenas impeded the progress of the liquidation process, making it difficult for the liquidator to gather necessary information and assets. However, this non-compliance added weight to the allegations made by the liquidator, further increasing scrutiny on the co-founders’ actions.

British Virgin Islands Court Freeze Order

The British Virgin Islands court freeze order was sought after by the liquidators of Three Arrows Capital, who pursued claims against the co-founders. The liquidators alleged that the founders, Kyle Davies and Su Zhu, should be held responsible for causing the deterioration of 3AC’s position. This deterioration was estimated to be equivalent to the value of the freezing orders sought, which amounted to over $1 billion.

The freeze order placed a restriction on the co-founders and Kyle Davies’ wife, Kelly Chen, preventing them from transferring or liquidating the digital assets. This action was taken to safeguard the frozen assets during the ongoing legal proceedings and to ensure that they remain available to creditors and other stakeholders.

The British Virgin Islands court freeze order was a significant development in the liquidation process, increasing the chances of recovering funds for the creditors and holding the co-founders accountable for their role in the firm’s financial troubles.

Su Zhu’s Arrest

After the collapse of Three Arrows Capital, both co-founders, Su Zhu and Kyle Davies, went into hiding. However, Su Zhu’s luck ran out in September when he was arrested in Singapore. Following his arrest, he was handed a four-month jail sentence.

Su Zhu’s arrest and subsequent sentencing highlighted the legal repercussions faced by the co-founders for their involvement in the collapse of Three Arrows Capital. It served as a reminder that attempts to evade legal processes and responsibilities would not go unnoticed or unpunished.

Conclusion

The freeze order issued by the British Virgin Islands court has temporarily halted the transfer or sale of digital assets belonging to the founders of Three Arrows Capital, Kyle Davies and Su Zhu. This freeze order, which also applies to Kyle Davies’ wife, Kelly Chen, holds the co-founders accountable for the alleged deterioration of 3AC’s position.

Despite their attempts to frustrate the liquidation process, including filing for Chapter 15 bankruptcy protection and evading subpoenas, the co-founders are now faced with legal consequences. The arrest and sentencing of Su Zhu emphasize the seriousness of the situation and the commitment to ensuring accountability.

As the liquidation process continues, creditors and stakeholders will closely follow the developments and outcomes. The freeze order provides hope for potential recovery of funds, but the extent and timing of the returns remain uncertain. The case of Three Arrows Capital serves as a cautionary tale for the cryptocurrency industry, reminding individuals and firms of the importance of financial transparency and responsibility.

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