Three Arrows Capital Said to Face Probes by US SEC, CFTC Over Investor Conduct Violations

The probe is likely to lead to monetary fines and other penalties for the firm.

Written by Shomik Sen Bhattacharjee, Edited by David Delima | Updated: 18 October 2022 20:16 IST

Photo Credit: Three Arrows Capital

US authorities are looking into Three Arrows Capital following the firm's bankruptcy

Highlights

3AC was one of the more prominent crypto firms before its fall
The firm first encountered financial issues after Terra's collapse
The SEC and CFTC are yet to officially confirm an investigation

Three Arrows Capital (3AC) is facing a probe by two US authorities in the wake of the firm's bankruptcy. A recent report reveals that the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are looking into potential investor conduct violations by Three Arrows. The regulators are explicitly investigating whether the company failed to register with the two organisations and deceived investors about its holdings. The collapse of the Terra ecosystem in May pushed 3AC into a major collapse from being the world's largest crypto hedge fund.

According to a report by Bloomberg citing sources familiar with the matter, the scrutiny from the regulators could lead to additional penalties for the firms and the individuals. Currently, the whereabouts of Three Arrows founders Su Zhu and Kyle Davies remain unknown.

It is worth noting that the SEC and CFTC have not confirmed that an investigation is ongoing. Bloomberg was instead informed of the supposed investigation by an unnamed source.

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Three Arrows Capital (3AC) first encountered financial issues when it lost money during the collapse of TerraUSD in May.

The company defaulted on a loan from Voyager Digital on June 27 and was ordered to liquidate assets on June 29. Days later, on July 1, it declared bankruptcy. The case attracted more controversy as the company's founders abandoned its Singapore offices in July before fleeing the country and failing to make court appearances.

Three Arrows Capital is already under investigation by regulators in Singapore. Those regulators claim that the company provided false information to the company's monetary authority and exceeded its assets under management (AUM) threshold of $250 million (roughly Rs. 2,100 crore).

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Following the bankruptcy, advisory firm Teneo was appointed as the company responsible for liquidating 3AC's assets. However, Teneo has been unsuccessful in reaching the co-founders of Three Arrows Capital, as they have seemingly disappeared.

The liquidator is now looking for permission to issue subpoenas to these co-founders as a last resort. The company has also complied with orders as part of its bankruptcy proceedings.

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