- Su Zhu and Kyle Davies, co-founders of the collapsed crypto hedge fund Three Arrows Capital, have been banned from financial activities in Singapore for nine years
- Three Arrows Capital’s bankruptcy helped exacerbate the crypto contagion event and impacted other crypto firms
- MAS imposed the ban due to Three Arrows’ failure to promptly report the hiring of a key staff member and issues with its reporting and management
The co-founders of the collapsed crypto hedge fund Three Arrows Capital, Su Zhu and Kyle Davies, have been banned from engaging in financial activities in Singapore for a period of nine years. The Monetary Authority of Singapore (MAS) announced the ban yesterday, more than a year after the company went bust, with the pair also facing allegations of violating the Securities and Futures Act 2001 and Securities and Futures Regulations.
Three Arrows Collapse Precipitated Crypto Contagion
Three Arrows Capital was based in Singapore, with Zhu acting as CEO and Davies as chair and director. The hedge fund became one of the first major cryptocurrency firms to go bankrupt during the “crypto contagion” event of 2022, a period characterized by widespread financial turmoil in the cryptocurrency industry.
This financial instability was triggered by the rapid devaluation of Terra’s dollar-pegged UST stablecoin and the subsequent failure of the LUNA ecosystem supporting it. The fallout from these events led to the bankruptcy of numerous cryptocurrency companies, including Three Arrows Capital, which was part of a lending chain. Its collapse had a huge impact on several other crypto firms and exacerbated the crypto winter.
It was reported in October that the Commodity Futures Trading Commission and the Securities and Exchange Commission are looking into whether the fund misled investors over the strength of its balance sheet, while Teneo, the company brought in to deal with the liquidation of the firm, it seeking $1.3 billion from Zhu and Davies.
MAS Alerted by Several Issues
The specific reasons for the MAS ban include Three Arrows’ failure to promptly notify MAS of the employment of Cheong Jun Yoong Arthur, who had served as a hedge fund manager for Three Arrows between August 2020 and September 2021, and falsely claiming that he was not involved in any regulated activities within the company.
The prohibition order also highlighted that Three Arrows lacked an adequate risk management framework for identifying, preventing, and mitigating risks associated with cryptocurrency trading.
MAS representative Loo Siew Lee expressed the seriousness of the situation, stating, “Senior management of fund managers are required to implement robust risk management measures to protect the interest of investors. MAS takes a serious view of Mr. Zhu’s and Mr. Davies’ flagrant disregard of MAS’ regulatory requirements and dereliction of their directors’ duties. MAS will take action to weed out senior managers who commit such misconduct.”
