- Three Arrows Capital is seeking over $1.3 billion in damages from Terraform Labs for losses suffered during the 2022 collapse of TerraUSD and LUNA
- Liquidators Teneo allege that Terraform Labs manipulated the market, leading Three Arrows to invest more in TerraUSD and LUNA
- Three Arrows Capital collapsed in July 2022, causing a ripple effect in the crypto industry
Liquidators of the defunct cryptocurrency hedge fund, Three Arrows Capital, are seeking over $1.3 billion in damages from Terraform Labs, the bankrupt digital assets firm co-founded by Do Kwon. The claim stems from significant losses Three Arrows suffered during the 2022 collapse of Terraform’s associated tokens, TerraUSD and LUNA, with the filing alleging that Terraform Labs tricked Three Arrows into investing more in the two tokens through market manipulation. Three Arrows collapsed in July 2022, triggering several other crypto company collapses.
Teneo Alleges Market Manipulation
Three Arrows, once one of the most prominent crypto hedge funds in the world, was among several high-profile casualties of the TerraUSD and LUNA collapse. The crash not only devastated its direct investments in these tokens but also contributed to the fund’s eventual demise. Following its collapse, a court in the British Virgin Islands appointed liquidators from Teneo, a consulting and advisory firm, to oversee the recovery of assets to repay the fund’s creditors.
Teneo has been actively pursuing recovery efforts, seeking $1.3 billion from Three Arrows’ founders, Su Zhu and Kyle Davies, along with other entities. In the recent filing, Teneo alleges that Terraform Labs manipulated the TerraUSD and LUNA markets, artificially inflating their prices and subsequently leading Three Arrows to invest heavily in these tokens. When the market crashed, the hedge fund’s investment in these assets was almost entirely wiped out, causing further substantial losses across its broader portfolio.
From $462 Million to $2,700
Bloomberg reveals that that Three Arrows acquired $190 million worth of LUNA in January 2022 as part of a broader $1 billion investment deal. However, a massive selloff of TerraUSD shortly thereafter led to a dramatic decline in the value of both tokens and by mid-May 2022, Three Arrows’ LUNA holdings had plummeted from $462 million to a mere $2,700. Simultaneously, the net value of its other digital assets dropped by approximately $858 million.
Three Arrows’ chances of success aren’t thought to be high, given that Terraform Labs filed for Chapter 11 bankruptcy in January and is now preparing for liquidation. In June, the company reached a settlement with the Securities and Exchange Commission over allegations of securities fraud, with the company and its founder, Do Kwon, agreeing to pay a total of $4.47 billion in disgorgement and civil penalties.
