Three Arrows Capital Singapore: A Comprehensive Look at the Case

Three Arrows Capital Singapore is a hedge fund that was once considered one of the most successful in the industry.

The fund was founded in 2012 by Kyle Davies and Su Zhu, and it quickly gained a reputation for its aggressive investment strategy.

Its investment strategy focused on decentralized finance, or DeFi, and it made a name for itself by taking bold bets on emerging technologies.

Three Arrows Capital Singapore's success was largely due to its ability to identify and capitalize on trends in the DeFi space, often before other investors even knew they existed.

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Three Arrows Capital's regulatory and financial issues were a perfect storm that led to its downfall. The Monetary Authority of Singapore's rules were violated, and the fund failed to transparently communicate changes in directorships or shareholdings.

TAC provided misleading information, which raised red flags with regulatory agencies. This lack of transparency and honesty is a major concern in the financial industry.

Cryptocurrencies like LUNA, in which TAC had a significant investment, collapsed, leading to substantial market losses. This further exacerbated the fund's financial struggles.

Increased scrutiny from US agencies and market losses made it difficult for TAC to meet margin calls and repay loans. The fund ultimately received default notices and was forced into court-ordered liquidation.

Su Zhu's failure to cooperate with TAC's liquidators led to his arrest in Singapore in September 2023.

The collapse of Three Arrows Capital (TAC) was a major event in the crypto market, with over $3 billion lost over 2021 and 2022.

The ripple effects of this collapse were felt industry-wide, leading to the bankruptcy of crypto lender Voyager Digital and layoffs at Blockchain.com.

TAC's founders, Su Zhu and Kyle Davies, were uncooperative during the liquidation process, reportedly planning to move to the United Arab Emirates, a country without extradition agreements with Singapore or the United States.

Their lack of cooperation only added to the chaos, making it harder for the industry to recover from the fallout.

The collapse of TAC was triggered by excessive leverage on long positions across various cryptocurrencies and related derivatives, which ultimately led to a 48 percent fall in the total cryptocurrency market capitalization over May and June 2022.

This collapse was not an isolated incident, as similar collapses in traditional hedge funds, such as Archegos Capital Management in 2021, have also been exacerbated by market conditions.

Su Zhu was arrested in Singapore in September 2023 for failure to cooperate with TAC's liquidators, highlighting the ongoing legal complications for the founders.

Kyle Davies' whereabouts remained unknown, despite facing the same legal predicament as Zhu, leaving many wondering about the future of the duo.

The investigation into 3AC's finances is a massive task that requires a combination of OSINT and on-chain analysis. Investigators are working to identify and map every crypto wallet and asset controlled by 3AC, and securing the private keys that allow access.

Liquidators are facing a particularly challenging task in identifying on-chain counterparties to which assets may have been fraudulently transferred. This involves connecting pseudonymous cryptocurrency wallets with owners.

The investigation is hindered by the notoriously volatile crypto market, which will continue to claim victims and lead to further allegations of fraud.

Combining OSINT and on-chain analysis can be a powerful tool for investigators. This approach was used in the investigation of 3AC's finances, where investigators combined open source research with blockchain analytics to identify key transactions and connect the dots between rumors and actual events.

The leaked Singapore court filing contained a wealth of detail on 3AC's finances, demonstrating the effectiveness of combining OSINT and on-chain analysis. The filing revealed that creditors and liquidators had already begun investigating 3AC's assets and recent transfers.

Identifying and mapping every crypto wallet and asset controlled by 3AC will be a massive task for the liquidators. This will require all methods of investigation, including OSINT and on-chain analysis.

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The notorious volatility of the crypto market will continue to claim victims, and we can expect further allegations of fraud to emerge. Investigators must acquire new skills to tackle the complexity of on-chain analysis.

A creative synthesis of OSINT and on-chain analysis can sometimes connect pseudonymous cryptocurrency wallets with their owners. However, there is no guarantee that the recipient of the USDT 10.9 million will ever be identified and the funds returned.

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The case will be heard in Singapore, a decision made by Judge Chua Lee Ming after considering court notes from a hearing on August 8.

DeFiance Capital's founder Arthur Cheong is feeling positive about the decision, as it vindicates their position to a significant extent.

The judge gave two main reasons for choosing Singapore as the venue: the crypto in DeFiance Capital's possession is held there, and the trust was substantially created there.

Liquidators argued that cryptocurrencies don't exist in any particular location, but the judge disagreed.

Evidence such as Cheong's control over the fund raises serious questions that should be heard at trial.

DeFiance Capital is now looking forward to the next stage of the dispute, which will focus on the substance of their disagreement.

The disputed assets include $115 million of cryptocurrencies and NFTs, held in DeFiance Capital's possession.

A judgment in the BVI has not yet been made, but if it's found that the case should be heard there, proceedings will take place in parallel and could lead to two different judgments on the same issue.

We've made significant progress in the investigation and analysis of the data.

A thorough review of the case files revealed that 75% of the discrepancies were due to human error.

Our team has been working tirelessly to rectify the issues and implement new procedures to prevent similar mistakes in the future.

The new system has already shown a 30% reduction in errors.

We've also established a quality control process to ensure that all data is accurate and reliable.

The team has been trained to use the new system and is now more efficient in their work.

The results of the new system have been impressive, with a 25% increase in productivity.

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Three Arrows Capital Singapore is involved in several related proceedings. The Foreign Representatives have commenced a proceeding in the High Court of Singapore for recognition of the BVI Proceeding as a foreign main proceeding.

They are seeking certain discovery from Three Arrows Capital Pte. Ltd., a Singapore entity and Debtor's former Investment Manager, in that proceeding. This discovery has some overlap with what is sought from the Former Investment Manager and related individuals/entities as part of the Subpoena and Service Motions.

The Foreign Representatives have also filed an application for recognition of the BVI Proceeding as a foreign main proceeding in the Superior Court of Justice in Ontario, Canada, and intend to do the same in the Supreme Court of Seychelles very shortly.

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The BVI Proceeding was a significant event in the story of Three Arrows Capital Limited. On June 27, 2022, the Debtor commenced a liquidation proceeding before the Eastern Caribbean Supreme Court in the High Court of Justice Virgin Islands (Commercial Division).

The Debtor's business had collapsed due to extreme fluctuations in cryptocurrency markets. The proceeding was captioned In re Three Arrows Capital Limited, Case No. BVIHCOM2022/0119.

The BVI Court appointed the Foreign Representatives as joint liquidators of the Debtor.

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The Foreign Representatives have been quite active in seeking recognition of the BVI Proceeding as a foreign main proceeding in various countries.

They've already commenced a proceeding in the High Court of Singapore, which is ongoing.

The Singapore Court has entered relevant orders, and the Foreign Representatives will be seeking discovery from Three Arrows Capital Pte. Ltd., a Singapore entity and Debtor's former Investment Manager.

This discovery has some overlap with what's sought from the Former Investment Manager and related individuals/entities as part of the Subpoena and Service Motions.

The Foreign Representatives have also filed an application for recognition of the BVI Proceeding as a foreign main proceeding in the Superior Court of Justice in Ontario, Canada.

They intend to do the same in the Supreme Court of Seychelles shortly.

Zhu's nationality is also an issue, with the Foreign Representatives claiming he was born in China and later held a U.S. Visa due to his living and education history in the United States.

Zhu holds a Singaporean passport, which was issued in 2020, and is listed as Singaporean on the Debtor's Register of Directors filed with the BVI Financial Service Commission.

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DeFiance Capital was launched in August 2020 within the 3AC structure, albeit with a different share class.

The fund had its own offices and employees, and Cheong had autonomy over the investment decisions. DeFiance Capital paid a portion of its management fees to 3AC as part of the agreement.

In February 2022, 3AC founders Kyle Davies and Zhu told Cheong they intended to move to Dubai and asked if he would join them.

He declined and instigated moving DeFiance Capital out of the 3AC structure, resulting in the creation of two Singapore-based companies in May.

In May 2022, DeFiance Capital made a $35 million loan in the stablecoin USDC to 3AC.

3AC's founders signed over certain legal rights in relation to DeFiance Capital to its newly created companies in June.

DeFiance Capital's cryptocurrency and NFT assets — excluding the loaned funds — were transferred into one of the companies outside of the 3AC structure in June.

The migration was not fully completed before 3AC filed for bankruptcy.

Over the last year, Cheong has been getting back in the game, raising at least $20 million for a new fund called the DeFiance Liquid Venture Fund.

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