Bankrupt crypto hedge fund firm Three Arrows Capital (3AC) is being probed by two U.S. regulators – the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to ascertain if the fund violated rules by misrepresenting the health of its balance sheet to investors and failing to register with the authorities.
Prior to declaring Chapter 15 bankruptcy on July 1, the Singapore-based fund, which started actively trading cryptocurrencies in 2017, was one of the biggest cryptocurrency funds in the world, claiming that it owed $3.5 billion to creditors as a result of its collapse.
In March 2022, blockchain analytics company Nansen estimated that the firm managed about $10 billion in investors' assets.
Exposure to Terra's Luna (CRYPTO: LUNA) and TerraUSD (CRYPTO: UST) tokens, as well as Grayscale's Bitcoin Trust has been blamed for 3AC's failure.
The scrutiny could lead to monetary fines and other penalties for firms and individuals, according to a Bloomberg report, citing anonymous sources.
When the value of Terra's tokens plummeted in May 2022, it not only adversely impacted 3AC but also other significant players in the crypto market, including the now-bankrupt Celsius and Voyager exchanges.
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3AC under scrutiny of Singapore regulators The Monetary Authority of Singapore (MAS), the country’s financial watchdog, claimed in a filing that the hedge fund may have failed to ensure that the information it provided to it was accurate and trustworthy, failed to inform it of any changes to directorships and shareholdings and that the company repeatedly violated its Assets Under Management (AUM) threshold.
Three Arrows' assets under liquidation Teneo, the business advising company overseeing the Chapter 15 bankruptcy procedure, acquired a collection of expensive NFTs in October, including those from highly prized collections like Yuga Labs' CryptoPunks (CRYPTO: PUNK).
With the present location of 3AC co-founders Zhu Su and Kyle Davies being unknown only complicates the investigation process.
The pair started the fund in 2012 after studying together at Columbia University.
Due to their non-availability, a Singaporean judge had to send the fund's founders subpoenas through email and Twitter.
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