Liquidators for the defunct cryptocurrency hedge fund Three Arrows Capital are pursuing a claim of at least $1.3 billion against TerraForm Labs Pte., the bankrupt digital assets company co-founded by Do Kwon.
The claim arises from significant losses Three Arrows suffered following the 2022 collapse of TerraUSD and Luna, tokens associated with TerraForm Labs, Bloomberg reported.
According to court filings, TerraForm Labs allegedly manipulated the market for TerraUSD and Luna, artificially inflating their prices and inducing Three Arrows to invest heavily in the tokens.
The subsequent crash of these tokens not only wiped out Three Arrows’ investment but also caused substantial losses in its other holdings.
Three Arrows Capital, once a prominent name in the crypto hedge fund industry, collapsed shortly after the Luna and TerraUSD crash, along with several other major crypto businesses.
In the aftermath, a court in the British Virgin Islands appointed liquidators from the consulting firm Teneo to recover assets and repay the hedge fund's creditors.
The liquidators have since pursued similar claims against the hedge fund’s founders, Su Zhu and Kyle Davies, as well as other related entities.
Also Read: Massive $650M Crypto Fraud Scheme Uncovered, SEC Files Charges (UPDATED)
In April, a U.S. jury found TerraForm Labs and Kwon liable for fraud in connection with the collapse of Luna. Despite the ongoing legal battles, TerraForm's bankruptcy lawyers have yet to comment on the recent claims filed by Three Arrows’ liquidators.
Court documents reveal that Three Arrows acquired $190 million worth of Luna in January 2022 as part of a larger $1 billion investment deal.
However, a significant selloff of TerraUSD just months later triggered a dramatic decline in the value of Luna.
By the end of April 2022, Three Arrows held $462 million worth of Luna, but the value plummeted to just over $2,700 by mid-May, according to Bloomberg.
Additionally, the value of Three Arrows’ other digital assets fell by approximately $858 million during the same period.
The potential recovery from TerraForm Labs remains uncertain, as the company filed for Chapter 11 bankruptcy in January and is currently preparing for liquidation.
Kwon, who was arrested in Montenegro last year, faces legal charges in both the United States and his native South Korea.
A Montenegro court recently ruled that Kwon should be extradited to South Korea.
As the legal and financial ramifications of the TerraUSD and Luna collapse continue to unfold, these issues will be a focal point at Benzinga’s Future of Digital Assets event on Nov. 19, where industry leaders will discuss the future of digital assets and the implications of such high-profile collapses.
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