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 filed a $120 million claim, accusing FTX of improperly seizing assets before the hedge fund’s collapse. Over a year later, the case took a dramatic turn when they revised the claim to $1.53 billion, asserting that just two weeks before 3AC’s liquidation, FTX had liquidated assets on its platform to cover $1.3 billion in liabilities owed by 3AC.
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.”
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.
