Recently, liquidators representing Three Arrows Capital (3AC) have taken legal action against TerraForm Labs, a bankrupt digital assets company co-founded by Do Kwon. The liquidators are alleging that TerraForm Labs engaged in market manipulation, specifically affecting the prices of Luna and TerraUSD. This alleged manipulation resulted in inflated prices for these tokens, which ultimately led to heavy losses for 3AC.
The collapse of Luna and TerraUSD tokens had a devastating impact on 3AC’s investments. In January 2022, 3AC made a substantial investment of $190 million in Luna as part of a larger deal. However, a sell-off of TerraUSD a few months later caused a sharp decline in both TerraUSD and Luna prices, wiping out a significant portion of 3AC’s investment. By May 14, the value of 3AC’s Luna holdings had plummeted drastically, resulting in substantial losses for the fund.
TerraForm Labs, the target of the $1.3 billion lawsuit, filed for Chapter 11 bankruptcy earlier this year and is currently undergoing liquidation. The outcome of the legal action and the amount of money that can be recovered remain uncertain. In addition to the lawsuit against TerraForm Labs, 3AC’s liquidators are also pursuing claims against the fund’s founders, Su Zhu and Kyle Davies. The legal proceedings and liquidation process have created significant challenges for all parties involved.
The downfall of Three Arrows Capital and the legal troubles surrounding TerraForm Labs have sent shockwaves through the crypto hedge fund industry. Following the collapse of LUNA, 3AC faced financial difficulties, prompting the appointment of liquidators to recover assets and repay creditors. The legal actions and investigations have tarnished the reputation of key figures in the industry, including Do Kwon, who was arrested in Montenegro last year and now faces charges in multiple countries.
The legal battle between 3AC’s liquidators and TerraForm Labs highlights the risks and challenges present in the volatile world of digital assets. Market manipulation, investment losses, bankruptcy, and legal disputes have far-reaching consequences for all parties involved. As the case unfolds, the outcome will have a significant impact on the future of crypto hedge funds and the broader financial industry.