SEC, CFTC Launch Probe Into Bankrupt Crypto Fund Three Arrows Capital: Report

Two key US regulators are reportedly investigating bankrupt crypto-focused hedge fund Three Arrows Capital (3AC).

According to anonymous sources reported by BloombergCommodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) now watching whether the fund “broke rules by misleading investors about the strength of its balance sheet and failing to register with the agencies.”

The Singapore-based fund, which began actively trading cryptocurrencies in 2017, was one of the world’s largest crypto funds before it filed for Chapter 15 bankruptcy on July 1, claiming that it owed $3.5 billion to creditors after the collapse.

Blockchain analytics firm Nansen estimated it had about $10 billion in assets under management in March 2022.

3AC’s collapse has been attributed to exposure to Terra’s luna (LUNA) and terraUSD (UST) tokensas well as to Grayscale’s Bitcoin Trust (GBTC).

The price of Terra’s tokens crumbled in May, causing unknown financial problems not only for 3AC, but for other major players in the crypto space, such as now bankrupt lenders Celsius and Voyager.

It’s not just US regulators who are busy delving into Three Arrows’ finances either; the firm is already facing increased scrutiny in Singapore.

An archive by the country’s financial watchdog the Monetary Authority of Singapore (MAS) alleged that the hedge fund may have failed to ensure that the information provided to it was not false or misleading, failed to notify it of changes in directorships and shareholdings, as well as committed a long-term breach of assets under management (AUM threshold.

Three Arrows Capital liquidation

The liquidation of Three Arrow’s assets is already well under way.

In October, a collection of expensive NFTs was moved to Teneo, the business advisory firm leading the Chapter 15 bankruptcy process, which including pieces from highly regarded collections such as Yuga Labs’ CryptoPunks.

The investigation is complicated by the fact that the physical location of 3AC’s founders Zhu Su and Kyle Davies, who founded the fund in 2012 after studying together at Columbia University, is currently unknown.

Their unavailability forced a judge in Singapore to issue subpoenas via Twitter and email to the fund’s founders.

It appears that the SEC may have its hands full when it comes to crypto bankruptcy proceedings as of late.