Bankrupt hedge fund Three Arrows Capital under investigation by SEC and CFTC for possible legal violations

Reports indicate that bankrupt cryptocurrency hedge fund Three Arrows Capital (3AC) is facing new problems from liquidators and financial authorities at the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). The whereabouts of the hedge fund’s co-founders, Su Zhu and Kyle Davis, remain unknown.

3AC reportedly under investigation by U.S. regulators

The co-founders of hedge fund Three Arrows Capital (3AC) are reportedly under investigation by U.S. regulators, according to unnamed sources cited by Bloomberg. The Bloomberg article states that while the creditors claim 3AC owes them billions, the SEC and CFTC are investigating “a series of possible legal violations“.

3AC came under scrutiny after the hedge fund suffered huge losses following the Terra implosion and UST carve-up, with reports in mid-June that the fund was insolvent.

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The accounts had noted that 3AC owed $655 million to Voyager Digital, now in bankruptcy, and a court in the British Virgin Islands issued an order to seize the fund’s assets for formal liquidation.

In the first week of July, 3AC filed for Chapter 15 bankruptcy protection, and at the end of the month, co-founders Su Zhu and Kyle Davis spoke for the first time about the problems facing 3AC. While they talked about the situation and noted that it was all “unfortunate“, we still don’t know where the duo is.

Bloomberg contributors Allyson Versprille, Lydia Beyoud and Olga Kharif say unnamed sources say U.S. regulators are investigating 3AC for failing to register with the SEC or CFTC and for problems with the company’s balance sheet.

The court-appointed bankruptcy liquidator is trying to summon 3AC’s co-founders via Twitter and email.

According to another article, statistics show that 3AC had about $10 billion in assets under management (AUM) last March, before Terra imploded. Bloomberg’s Jeremy Hill explained Monday that the court-appointed liquidator in the 3AC bankruptcy is seeking to subpoena Zhu and Davis via Twitter and email.

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Attorneys for Teneo, the court-appointed liquidator, have attempted to use the traditional method of communication by subpoena, and attempts to locate and subpoena Zhu and Davis have been unsuccessful. Hill’s report indicates that Davis kept the identifying information for the crypto accounts in a safe deposit box, but liquidator Teneo said the two co-founders provided “meager” information.

Last week the liquidator had moved more than 300 non-fungible tokens (NFTs) linked to the defunct crypto-currency hedge fund. The NFTs confiscated by liquidator Teneo are now stored in a secure Gnosis Safe account.

All Starry Night Capital NFTs, of which VVD is aware, have been accounted for and are in our possession or are transferred to us“, said Teneo after the transfer of the NFTs.

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