TL;DR
- Three Arrows Capital Sues TerraForm Labs: Liquidators of the failed hedge fund are seeking $1.3 billion in damages, claiming the 2022 LUNA crash caused substantial losses.
- Investment Wiped Out: Three Arrows Capital’s $190 million investment in LUNA plummeted to around $2,700, with overall crypto holdings dropping by $858 million.
- Uncertain Recovery: Despite the lawsuit, it’s unclear how much can be recovered from TerraForm Labs, especially with founder Do Kwon facing extradition hurdles.
In a significant legal move, the liquidators of Three Arrows Capital have filed a lawsuit against TerraForm Labs, seeking $1.3 billion in damages. The failed crypto hedge fund claims that the collapse of LUNA in 2022 led to substantial losses for the firm.
The crash of TerraUSD and LUNA in 2022 had widespread repercussions, affecting numerous firms, including Three Arrows Capital. According to court papers cited in a Bloomberg report, the liquidators allege that TerraForm Labs persuaded Three Arrows Capital to invest in LUNA and TerraUSD.
Furthermore, TerraForm Labs is accused of manipulating and inflating the prices of these tokens before their eventual crash, which wiped out Three Arrows’ investments and caused significant financial damage.
Three Arrows Capital’s Collapse
Before the catastrophic collapse of the Terra ecosystem in 2022, Three Arrows Capital was a well-regarded crypto hedge fund. However, the Terra crash triggered a domino effect, leading to the downfall of Three Arrows and other notable firms.
Following the collapse, a British Virgin Islands court appointed liquidators to recover funds from the firm’s founders, Su Zhu and Kyle Davies, to repay the hedge fund’s creditors.
The liquidators revealed that Three Arrows Capital had purchased $190 million worth of LUNA in early 2022 as part of a $1 billion investment deal. However, the subsequent sell-off of Terra ecosystem tokens after the crash obliterated this investment.
By the end of April 2022, Three Arrows held LUNA worth approximately $462 million. Still, this value plummeted to around $2,700 by May 14, according to court documents. Additionally, the value of Three Arrows’ other crypto holdings dropped by about $858 million.
Uncertain Recovery Prospects
Despite the lawsuit, it remains uncertain how much money can be recovered from TerraForm Labs. The founder of the Terra ecosystem, Do Kwon, was arrested in Montenegro last year with a fake passport.
Since then, South Korea and the US have been debating his extradition. Although a Montenegro court ruled that Kwon should be extradited to South Korea, the decision has faced multiple hurdles.
The outcome of this legal battle could have significant implications for the crypto industry and the recovery efforts of Three Arrows Capital’s creditors.
