Court allows bankrupt fund Three Arrows Capital to increase its claims against FTX to $1,5 billion

What’s new? A US court has allowed the liquidators of the hedge fund Three Arrows Capital (3AC) to raise their claims against bankrupt exchange FTX to $1,53 billion, rejecting objections from FTX creditors that the move was untimely and unfair. Judge John Dorsey in the Bankruptcy Court for the District of Delaware ruled that 3AC’s liquidators’ investigation was complicated by FTX’s untimely filing.

What else is known? 3AC, once one of the largest cryptocurrency hedge funds with more than $3 billion in assets, collapsed in June 2022 after a sharp downturn in the crypto market.

Founded by Kyle Davies and Su Zhu, the fund held large leveraged positions in digital assets, including Do Kwon’s TerraUSD stablecoin, which collapsed to nearly zero in May 2022.

The collapse of 3AC triggered a wave of liquidations in the crypto industry, affecting lending platforms Voyager Digital and BlockFi. Its liquidation began in June 2022 following a court order in the British Virgin Islands.

According to court documents, as of June 12, 2022, 3AC held $1,53 billion in assets on FTX. Over the next two days, those assets were liquidated to cover $1,3 billion owed to FTX.

3AC’s liquidators originally filed a $120 million claim in FTX’s June 2023 bankruptcy case but later expanded it to say the claims include breach of contract, unjust enrichment, and breach of fiduciary duty.

The new judgment came 15 months after 3AC’s liquidators sought a $1,14 billion asset freeze on co-founders Davies and Zhu. So, in December 2023, the court barred Zhu, Davies, and Davies’ wife Kelly Chen from accessing the funds while proceedings against them were ongoing.

Liquidators argue that the founders should be held accountable for exacerbating 3AC’s financial problems in the weeks leading up to the fund’s collapse.

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As for FTX itself, it filed for bankruptcy in November 2022 due to a multi-billion dollar fraud by senior executives on client assets. The exchange’s founder, Sam Bankman-Fried, was later sentenced to 25 years in prison.

The exchange’s new managers began the first phase of $1,2 billion in paymentsto victims in February 2025. In early March, Kraken, which was brought in as a partner, announced that it would begin distributing compensation to FTX clients on May 30, including clients with claims of more than $50 000.