US Regulators Probe Three Arrows Capital's Downfall; Missing Founders Could Be Subpoenaed

U.S. regulators - Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) - are reportedly probing bankrupt cryptocurrency hedge fund Three Arrows Capital (3AC) as they try to get to the bottom of one of the greatest crashes in crypto this year, while liquidators are pushing to subpoena its missing founders, Su Zhu and Kyle Davies.

Singapore-based Three Arrows Capital was one of the prominent cryptocurrency hedge funds that used to have as much as $10 billion in assets until it fell into liquidation in June. The company's extensive sell-off of digital assets was caused in part by the meteoric collapse of the Terra blockchain in May.

Currently, the CFTC and the SEC are investigating whether the hedge fund engaged in illicit activities like misleading its investors about its real financial condition and not registering with agencies, Bloomberg reported earlier this week, citing two sources "familiar with the matter." The CFTC and the SEC are yet to officially confirm their investigations into the bankrupt hedge fund.

During its heyday, 3AC earned its reputation for its bullish stance and was a major player in the crypto industry. Aside from the billions in assets, the hedge fund was a recipient of loans spanning across the industry and was also a known investor of some of the best-known start-ups in the industry.

However, 3AC's position in the Terra blockchain caused the firm to sustain losses when the project came crashing down in May. Following the spectacular collapse, Three Arrows Capital failed to meet margin calls from lenders and was eventually ordered by a court in the British Virgin Islands to liquidate on June 27 and filed for bankruptcy in July.

In late June, Singaporean regulators accused Three Arrows Capital of supplying false information. Its missing founders Davis and Zhu reportedly stole borrowed funds to purchase a yacht. Liquidators have already taken control of millions of dollars worth of the firm's assets, which is just a small chunk of the billions it owed to its creditors, including cryptocurrency lender Celsius Network and the bankrupt Voyager Digital.

Meanwhile, court-appointed liquidators, along with their lawyers, sought the approval of a U.S. judge to serve subpoenas to the missing founders through their Twitter accounts and email addresses since conventional methods of issuing such have failed, according to court documents. The filings also claimed that the whereabouts of the founders are still unknown and their lawyers refused to accept documents on their clients' behalf.

"The Founders, through counsel, implausibly insist that the meager information provided to the Foreign Representatives [Teneo], which amounts to an incomplete list of assets and selective disclosures regarding the means to access certain digital assets electronically, represents all of the documents in their possession relating to the Debtor," the filings read.