3AC Founders Subpoenaed Amidst Terra Luna Collusion Claims: What’s Next?

The crypto world is still reeling from the aftershocks of major collapses, and the saga of Three Arrows Capital (3AC) continues to unfold. Just when you thought things couldn’t get more dramatic, a bankruptcy judge has greenlit subpoenas for 3AC’s co-founders, Su Zhu and Kyle Davies! This development comes amidst swirling allegations of collusion between the now-infamous Terra Luna and the once-mighty hedge fund. Let’s dive into the details of this escalating legal drama and what it could mean for the future of crypto accountability.

Subpoenas Served: Is Justice Finally Catching Up?

In a significant move, a federal judge overseeing the 3AC bankruptcy case has officially authorized the serving of subpoenas to former executives, most notably co-founders Su Zhu and Kyle Davies. This isn’t just a procedural step; it’s a clear signal that the court is serious about uncovering the full picture behind 3AC’s dramatic downfall. Remember, this hedge fund, once managing a staggering $10 billion, filed for Chapter 15 bankruptcy on July 1st after the Terra Luna (now Terra Classic – LUNC) and its stablecoin UST imploded.

But what exactly are these subpoenas demanding?

• Full Financial Disclosure: Zhu and Davies are legally obligated to hand over any and all “recorded information” related to 3AC’s assets and financial dealings. This includes everything from books and documents to records and papers.
• Digital Asset Transparency: The order is incredibly broad, aiming to uncover the full scope of 3AC’s holdings. It compels the disclosure of:
  • Digital and fiat currency accounts
  • Seed phrases and private keys (critical for accessing crypto wallets)
  • Information on securities and unregistered shares
  • Details of accounts held on both centralized and decentralized exchanges

Essentially, the court wants to leave no stone unturned in tracing 3AC’s assets and understanding where everything went. This is crucial for the firm tasked with liquidating 3AC, Teneo, as they attempt to recover assets for creditors.

Terra Luna’s Shadow: Collusion Allegations Add Fuel to the Fire

The timing of these subpoenas is particularly noteworthy because they arrive alongside fresh allegations of collusion between 3AC and Terra Luna. While the exact nature of these allegations is still emerging, the backdrop is clear: 3AC’s collapse is widely attributed to excessive leverage and the devastating Terra Luna crash.

To recap, the Terra Luna ecosystem, which included the algorithmic stablecoin UST, experienced a catastrophic failure. This event triggered a domino effect, impacting numerous crypto firms, including 3AC. The hedge fund had significant exposure to Terra Luna, and the subsequent market turmoil exposed their overleveraged positions.

Could there have been more to the relationship between 3AC and Terra Luna than just investment? The subpoenas and ongoing investigations aim to find out.

Who Else is in the Crosshairs? The “Discovery Targets”

The subpoena order isn’t limited to just Zhu and Davies. It casts a wide net, targeting a range of individuals and entities connected to 3AC. These “discovery targets” include:

• Tai Ping Shan Limited: A trading desk company linked to 3AC.
• DeFiance Capital: A venture capital firm also associated with 3AC.
• Starry Night Capital: 3AC’s NFT-focused fund.
• Associates of the above entities: Expanding the reach for information.
• Key Individuals:
  • Hannah Terhune (Hedge fund attorney)
  • Mark Dubois and Cheuk Yao Pau (Directors)
  • Kelly Chen (Kyle Davies’ wife)

This broad list underscores the complexity of 3AC’s network and the extensive effort required to unravel its financial web. Each of these targets is expected to disclose relevant information within 14 days of being served, unless an alternative agreement is reached.

Where Are Zhu and Davies? The Mystery Continues

Adding another layer of intrigue to this saga is the elusive whereabouts of Su Zhu and Kyle Davies. While officially unconfirmed, it’s widely speculated that Zhu is currently based in Dubai, while Davies is believed to be in Bali, Indonesia. Despite the legal proceedings and their firm’s collapse, both have maintained a presence on social media, notably commenting on the recent FTX and Alameda Research debacle.

Their social media activity stands in stark contrast to their apparent lack of cooperation with the 3AC liquidation process, at least until now. Will these subpoenas finally compel them to come forward and provide the requested information? The crypto community is watching closely.

What Does This Mean for Crypto?

The 3AC bankruptcy and the pursuit of its founders have broader implications for the cryptocurrency industry. It highlights several critical points:

• Increased Scrutiny: Regulatory and legal scrutiny of crypto firms is intensifying. The 3AC case serves as a stark reminder that even in the decentralized world of crypto, traditional legal frameworks can and will be applied.
• Accountability for Founders: The subpoenas demonstrate a push for accountability at the highest levels. Founders and executives will be held responsible for the financial health and operational practices of their companies.
• Transparency and Disclosure: The demand for comprehensive financial disclosure is becoming paramount. Crypto entities, especially those managing significant assets, will face increasing pressure to be transparent about their holdings and activities.
• Risk Management Lessons: The 3AC collapse underscores the dangers of excessive leverage and inadequate risk management in the volatile crypto market. It’s a cautionary tale for investors and firms alike.

Looking Ahead: The Long Road to Resolution

The 3AC saga is far from over. The subpoenas are a significant step in the bankruptcy proceedings, but they are just one piece of a complex puzzle. The process of asset recovery, legal battles, and uncovering the full truth behind 3AC’s collapse will likely take considerable time.

For the crypto industry, this case is a crucial test. It will shape precedents for how bankruptcies are handled in the crypto space and how accountability is enforced. As the legal proceedings unfold, the world will be watching to see if justice will be served and what lessons will be learned from the fall of Three Arrows Capital.