In a shocking turn of events, Su Zhu, co-founder of the now-defunct Singaporean hedge fund Three Arrows Capital (3AC), was apprehended at Singapore’s Changi International Airport while trying to flee the country. This arrest came after Singaporean courts issued an arrest warrant for Zhu due to his deliberate failure to comply with a court order related to the liquidator’s investigations into 3AC’s activities. Zhu, a Singaporean national, was ultimately sentenced to four months in prison for this breach. Kyle Livingston Davies, 3AC’s co-founder, faced a similar fate, receiving a four-month prison sentence as well. Despite this, Davies’ current whereabouts remain unknown.
Both Zhu and Davies were barred by the Monetary Authority of Singapore from engaging in enterprise investment activity for nine years due to numerous regulatory violations, including surpassing 3AC’s statutory assets under management limit. These violations and the subsequent bankruptcy of 3AC had far-reaching consequences. The collapse of the hedge fund led to the bankruptcy of its counterparties, such as Celsius, Voyager, and FTX, leaving creditors with over $3.5 billion in claims.
The downfall of 3AC can be traced back to a series of failed leveraged trades on the Terra ecosystem. These trades left the hedge fund without any assets, plunging it into bankruptcy. To make matters worse, a clerical error by a U.S. judge halted over a year of bankruptcy proceedings, dealing a humiliating setback to the creditors. This chain of events caused significant financial turmoil within the cryptocurrency industry.
Following the collapse of 3AC, both Zhu and Davies sought refuge in alternative entrepreneurial ventures. Davies opened a restaurant in Dubai, while Zhu converted his $36 million luxury property in Singapore into an eco-farm. Zhu’s wife, Evelyn Tan, now owns the farm, which produces local vegetables, herbs, fruits, fish, chickens, and ducks. However, these ventures do little to alleviate the financial burden left by the collapse of 3AC.
In their ongoing attempts to recover financially, Zhu and Davies spearheaded the development of OPNX, a novel exchange based in Hong Kong. This platform allowed for trading bankruptcy claims on fallen crypto companies, including 3AC and FTX. While the platform initially showed promise, with $13.64 in trading volume on its debut, it quickly lost favor in the market. News of Zhu’s arrest and Davies’ indictment caused the Open Exchange Token to plummet nearly 60% in a single day. The token continues to lose value, with a fully diluted market capitalization of just $77 million, compared to over $300 million in June.
OPNX’s claims dashboard, which was intended to allow users to convert claims into collateral and trade crypto futures using native tokens, remains dysfunctional. Leslie Lamb, the CEO of OPNX, attempted to distance the firm from Zhu and Davies, claiming that they are no longer involved in its operations. However, in August, the three executives were fined $2.7 million by Dubai’s Virtual Asset Regulatory Authority for running OPNX as an unlicensed exchange.
The liquidator appointed for 3AC, Teneo, has been actively pursuing the recovery of assets linked to the collapsed hedge fund. Nonfungible tokens owned by 3AC have been successfully auctioned through Sotheby’s, netting a total of $13.4 million. However, the proceedings are still ongoing, and the creditors’ priority remains focused on recovering the assets of 3AC and maximizing returns for them.
The collapse of Three Arrows Capital showcases the consequences of regulatory violations and reckless financial decisions in the cryptocurrency industry. The arrests of Su Zhu and Kyle Livingston Davies, the bankruptcy of 3AC, and the subsequent chain reaction highlight the importance of compliance and responsible investment practices. As the industry continues to evolve, it is crucial for participants to learn from such failures and work towards building a more sustainable and secure financial ecosystem.
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