FTX Rejects 3AC’s Massive $1.5B Crypto Claim, Citing ‘Failed Trading Strategy’
The ongoing saga involving collapsed crypto giants FTX and Three Arrows Capital (3AC) continues to unfold in court. In a significant development, FTX has formally rejected 3AC’s substantial $1.5 billion crypto claim, arguing that creditors shouldn’t bear the cost of 3AC’s risky bets.
The Escalating 3AC Bankruptcy Claim
Three Arrows Capital’s liquidators initially filed a $120 million claim against FTX in June 2023 as part of the FTX bankruptcy proceedings. This claim dramatically increased to $1.53 billion in November 2024. The liquidators alleged that FTX held $1.53 billion of 3AC’s assets which were then liquidated in 2022, contributing to 3AC’s own collapse. They contended these transactions were avoidable and that FTX had delayed providing information that would reveal the details.
Chief Judge John Dorsey approved the motion allowing the expanded claim in March, setting the stage for FTX’s response.
FTX’s Stance: A ‘Failed Trading Strategy’
In an objection filed in the US Bankruptcy Court for the District of Delaware, lawyers representing FTX dismissed 3AC’s claims as “illogical and baseless.” Their core argument centers on 3AC’s high-leverage positions:
- 3AC made significant bets on rising crypto prices.
- When the market fell, 3AC’s positions deteriorated.
- FTX argues 3AC became a victim of its “own risky trading strategy.”
FTX’s lawyers stated, “The Joint Liquidators ask this Court to force other Exchange customers and creditors to foot the bill for 3AC’s failed strategy by asserting illogical and baseless claims for $1.53 billion.”
Dispute Over Account Balances and Liquidation Details
A key point of contention is the accuracy of the account balances used by 3AC to arrive at the $1.53 billion figure. FTX lawyers argue 3AC relied on inaccurate data from June 12, 2022, when the firm’s crypto balance was $1.02 billion, not $1.59 billion, and the negative USD balance was $733 million, not $1.3 billion.
FTX contends that 3AC’s “lost asset theory” is based on a false premise and lacks factual merit, asserting that 3AC is actually owed nothing. FTX claims 3AC only had an available balance of $284 million, which was further reduced by market declines and $60 million in withdrawals by 3AC.
Regarding the liquidation event, FTX lawyers claim the only liquidation against 3AC was for $82 million in crypto. They argue this was contractually permitted under credit and margin agreements to ensure 3AC met account balance requirements. Furthermore, they state this $82 million liquidation benefited 3AC by converting volatile digital assets into stable fiat currency, preserving value rather than diminishing it.
What’s Next in the Bankruptcy Battle?
Three Arrows Capital now has until July 11 to file a reply to FTX’s objection. A non-evidentiary hearing on the matter is scheduled for August 12 before Chief Judge Karen Owens in the US Bankruptcy Court for the District of Delaware.
Broader Recovery Efforts
This dispute is part of larger efforts by both collapsed entities to recover funds. 3AC has pursued claims against other firms, such as a $1.3 billion claim against Terraform Labs in its bankruptcy case. Similarly, FTX has been actively pursuing its own recovery efforts through various lawsuits since filing for bankruptcy in November 2022.
Conclusion
FTX’s forceful rejection of 3AC’s massive $1.5 billion claim highlights the complex and often contentious nature of large-scale crypto bankruptcies. By arguing that 3AC’s losses stem from a failed trading strategy and not improper liquidation, FTX seeks to protect the pool of assets available for its own creditors. The court’s decision on this objection will have significant implications for the distribution of remaining funds in both the FTX and 3AC bankruptcy cases, underscoring the financial fallout from the 2022 market downturn.
