Victory for Three Arrows Capital: US Court Approves Massive $1.53B FTX Claim

In a significant win for creditors, a United States court has granted Three Arrows Capital (3AC) the go-ahead to substantially increase its FTX claim. This ruling allows the defunct crypto hedge fund to pursue a staggering $1.53 billion claim against the collapsed cryptocurrency exchange FTX, a dramatic leap from the initial $120 million. Are you following the latest developments in the FTX bankruptcy saga? This decision marks a crucial turning point in the complex web of legal battles following FTX’s downfall.

Why Did the Court Approve the Increased FTX Claim?

Chief Judge John Dorsey of the US Bankruptcy Court for the District of Delaware delivered a decisive ruling, dismissing objections from FTX’s debtors. The core of the matter revolved around the timeliness and justification of 3AC’s amended proof of claim (POC). FTX argued that the increased FTX claim was presented too late and lacked sufficient initial notice. However, Judge Dorsey sided with Three Arrows Capital liquidators, asserting that they had provided adequate notice of their claim and the potential for amendments as more information became available. Furthermore, the court pointed a finger at FTX itself, suggesting that delays in providing crucial records were a significant factor in the timing of the amended claim.

In his ruling, Judge Dorsey stated emphatically:

“The evidence suggests that the delay in filing the Amended Proof of Claim was, in large part, caused by the Debtors themselves. The evidence also suggests that the Liquidators were diligent in attempting to obtain the information and that despite having the complete information in their possession, the Debtors repeatedly delayed giving it to them.”

This statement underscores the court’s view that Three Arrows Capital liquidators acted responsibly and that any delays were primarily attributable to FTX’s actions.

The Journey of the FTX Claim: From $120 Million to $1.53 Billion

The initial FTX claim filed by Three Arrows Capital in June 2023 stood at $120 million. However, as liquidators delved deeper and gained access to more information, this figure ballooned. By November 2024, the claim had been significantly expanded, incorporating allegations of:

• Breach of Contract: Accusations that FTX failed to uphold contractual obligations with Three Arrows Capital.
• Unjust Enrichment: Claims that FTX unfairly benefited at the expense of Three Arrows Capital.
• Breach of Fiduciary Duty: Allegations that FTX violated its responsibility to act in the best interests of Three Arrows Capital.

The liquidators contend that FTX held a substantial $1.53 billion in assets belonging to the now-defunct hedge fund. These assets, they argue, were liquidated to cover $1.33 billion in liabilities back in 2022. Three Arrows Capital maintains that these transactions were avoidable and inflicted significant harm on its creditors. They further assert that FTX’s delays in providing information hindered the uncovering of the full extent of this liquidation.

FTX’s Counter-Argument and the Court’s Rejection

FTX debtors strongly opposed the amended FTX claim. Their primary arguments were:

• Insufficient Initial Notice: FTX claimed the original $120 million POC was too vague and didn’t adequately inform them about the nature and scale of the eventual $1.53 billion claim.
• Untimeliness: FTX argued that the amended claim was filed too late in the bankruptcy proceedings and should therefore be disallowed.

However, Chief Judge Dorsey effectively dismantled these arguments, paving the way for Three Arrows Capital to pursue its significantly larger claim. This ruling is a setback for FTX’s debtors and a major step forward for 3AC liquidators in their efforts to recover funds.

What Does This Mean for the Crypto Bankruptcy Landscape?

This court decision highlights several critical aspects of crypto bankruptcies:

1. Complexity and Delays: Crypto bankruptcies are inherently complex and often plagued by delays in information sharing and legal proceedings.
2. Creditor Rights: The ruling underscores the importance of creditor rights in bankruptcy cases and the court’s willingness to ensure fair process.
3. Transparency and Disclosure: The case emphasizes the need for transparency and timely disclosure of information by debtors to facilitate accurate and comprehensive claim assessments.
4. Ongoing Recovery Efforts: Both Three Arrows Capital and FTX are engaged in extensive recovery efforts to reclaim assets, demonstrating the protracted nature of bankruptcy proceedings in the crypto space.

It’s worth noting that Three Arrows Capital, once a leading crypto hedge fund managing over $3 billion in assets, collapsed in June 2022. Similarly, FTX, which filed for bankruptcy in November 2022, is undergoing its own complex restructuring and asset recovery process. FTX has also initiated lawsuits against entities like SkyBridge Capital and Binance in its bid to reclaim funds.

The Road Ahead for the FTX Claim

With the court’s approval, Three Arrows Capital liquidators can now aggressively pursue their $1.53 billion FTX claim within the ongoing bankruptcy proceedings. This ruling is a significant procedural victory, but the actual recovery of funds is likely to be a lengthy and challenging process. The outcome will depend on various factors, including the overall asset recovery in the FTX bankruptcy, the validity of 3AC’s claims, and any potential settlements or further legal battles.

Key Takeaways:

• US court authorizes Three Arrows Capital to increase its FTX claim to $1.53 billion.
• The court cited delays by FTX in providing information as a key factor in its decision.
• Three Arrows Capital alleges breach of contract, unjust enrichment, and breach of fiduciary duty against FTX.
• This ruling is a win for 3AC creditors but the recovery process remains complex.

This development serves as a stark reminder of the interconnectedness and potential risks within the cryptocurrency ecosystem. As the crypto bankruptcy saga of FTX continues to unfold, this ruling on the FTX claim of Three Arrows Capital marks a pivotal chapter, with potentially far-reaching implications for the future of crypto asset recovery and creditor rights.