Three Arrows Capital Accuses TerraForm Labs of Market Manipulation in $1.3 Billion Lawsuit
Three Arrows Capital – The liquidators of Three Arrows Capital (3AC) have filed a claim demanding $1.3 billion from TerraForm Labs Pte., the digital assets firm co-founded by Do Kwon. This claim pertains to substantial losses incurred by 3AC following the 2022 collapse of TerraForm’s TerraUSD (UST) and Luna (LUNA) tokens. The legal action, filed on August 9 in the U.S. Bankruptcy Court for the District of Delaware, accuses TerraForm Labs of manipulating the market for LUNA and UST, which purportedly led 3AC to invest heavily in these assets.
Allegations of Market Manipulation
According to the document, TerraForm Labs is alleged to have engaged in a scheme that artificially inflated the prices of LUNA and UST. The liquidators assert that this manipulation misled 3AC into purchasing these tokens at inflated prices, resulting in significant financial losses. The claim suggests that 3AC suffered severe declines in the value of its holdings due to the subsequent market downturn.
Three Arrows Capital’s Collapse
Three Arrows Capital, a prominent cryptocurrency hedge fund, went under following the catastrophic crash of Luna and TerraUSD, which also affected other crypto businesses. The fund’s co-founders have since established a new venture capital fund. After the collapse, liquidators from Teneo were appointed by a British Virgin Islands court to recover assets for 3AC’s creditors.
Settlement with SEC
Last month, the Securities and Exchange Commission (SEC) revealed that TerraForm Labs and former CEO Do Kwon had agreed to a $4.5 billion settlement. This agreement came after the defendants were found liable for civil fraud in connection with the $40 billion collapse of UST and LUNA.
Investment and Losses
Court documents indicate that 3AC acquired $190 million worth of Luna in January 2022 as part of a $1 billion deal with other investment firms. By late April 2022, 3AC’s Luna holdings had risen to $462 million. However, following a sell-off of TerraUSD, this value plummeted to $2,700 by May 14. During the same period, the net value of 3AC’s other digital assets reportedly fell by $858 million.
Bankruptcy and Legal Proceedings
TerraForm Labs filed for Chapter 11 bankruptcy in January and is in the process of liquidation. Do Kwon, who was arrested in Montenegro last year, faces charges in both the U.S. and South Korea. A Montenegrin court has ruled that Kwon should be extradited to South Korea to face legal proceedings.
This ongoing legal battle highlights the significant financial ramifications of the collapse and the complexities involved in the cryptocurrency sector’s regulatory and recovery processes.
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