In a landmark ruling that underscores the complexities of cryptocurrency bankruptcies, the US Bankruptcy Court for the District of Delaware has granted Three Arrows Capital (3AC) the right to escalate its claim against the now-defunct exchange FTX to a staggering $1.53 billion. This decision marks a significant increase from the initial $120 million claim pursued by 3AC’s liquidators, highlighting the volatile interplay of liabilities and assets within the crypto sphere.
Legal Battle Escalates
The saga began in June 2023 when 3AC’s liquidators lodged a claim of $120 million, alleging that FTX had improperly seized assets prior to the hedge fund’s collapse. This narrative took a dramatic turn over a year later when the claim was revised to $1.53 billion, based on the assertion that, just two weeks before 3AC’s liquidation commenced, FTX liquidated assets on its platform to cover $1.3 billion in liabilities owed to it by 3AC.
FTX’s bankruptcy estate countered vigorously, arguing that the revised claims were untimely and introduced issues not related to the original filing. They contended that accepting the amended claim would disrupt the ongoing restructuring efforts and impose an unfair financial burden, as their reorganization plan was predicated on the original claim amount.
Court’s Decision
However, Judge John T. Dorsey dismissed these objections, noting that while FTX’s concerns were not without merit, they did not provide sufficient evidence to bar the amendment. He pointed out that the possibility of further claims had been hinted at in 3AC’s original filing, thus allowing room for the escalated claim.
The court also addressed allegations of intentional delay by 3AC, finding no evidence of bad faith. Instead, Judge Dorsey highlighted the significant challenges faced by 3AC’s liquidators, including missing records and limited access to FTX’s internal systems, compounded by a lack of cooperation from key personnel at FTX.
Judge Dorsey criticized FTX’s approach, particularly their restriction of access to crucial individuals and provision of only raw transaction data, which complicated the liquidators’ efforts to piece together a comprehensive financial overview. He remarked, “[FTX] gave the Liquidators only the raw data regarding the individual 3AC transactions on the FTX platform, and restricted access to the individuals who might be able to help put the puzzle together. [Their] assertions now that the Liquidators should be penalized for failing to assemble the puzzle faster is not well taken.“
This ruling not only amplifies the claim against FTX but also sets a precedent in how bankruptcy claims related to cryptocurrency entities are handled, especially when substantial financial transactions and liabilities are involved. It underscores the necessity for transparency and cooperation in these proceedings to ensure that all parties can accurately assess their positions and claims.
For more insights into navigating the complex landscape of cryptocurrency bankruptcies, consider exploring Navigating Web3 Recruitment Amidst Crypto Calamities and Crypto Talent for CBDCs Sought by Central Banks.
The implications of this case are far-reaching, affecting not only the parties involved but also the broader crypto and legal communities, as they observe how precedents set here could influence future bankruptcy litigations in the volatile world of cryptocurrency.
