Key takeaways:
- The insolvent crypto hedge fund 3AC has lost its motion to dismiss the action brought in April by Arthur Cheong by the Singapore High Court.
- The fund had access to 3AC’s resources, including auditors, fund administrators, and middle- and back-office infrastructure.
The insolvent cryptocurrency hedge fund Three Arrows Capital (3AC) has lost its motion to have the action brought in April by Arthur Cheong, also known as Cheong Jun Yoong, dismissed by the Singapore High Court. DeFiance Capital is a Web3 investing firm founded by Cheong.
In a lawsuit filed in April 2023, Cheong asserted that DeFiance Capital investors were the properties held in trust by 3AC’s ultimate beneficial owners and that the 3AC estate should not use such assets to settle claims from creditors.
Su Zhu and Kyle Davies, the founders of 3AC, and the claimant came to an agreement for the claimant to establish an autonomous fund on the 3AC Group platform that would be under its ownership and management. The fund had access to 3AC’s resources, including auditors, fund administrators, and middle- and back-office infrastructure.
Cheong’s name was attached to several accounts and wallets held by the fund, which was subsequently renamed DeFiance Capital. It gave Zhu and Davies a fee equal to one-fourth of the fees it collected.
DeFiance Capital accounts had 22.3 million USDT and $93.8 million in fiat and other cryptocurrencies as of May 2022. For DeFiance Capital, 3AC established subaccounts in its FTX and Binance accounts and a distinct workspace on the Fireblocks platform, serving as 3AC’s custody provider.
When 3AC relocated its headquarters to Dubai in 2022, DeFiance Capital was moved out of the company and formed as two separate firms in Singapore. As per a prior arrangement, some assets were not given to DeFiance Capital. The court ruling did not state how much those assets were worth.
In July 2022, 3AC filed for bankruptcy. In November, the Singapore High Court permitted DeFiance Capital to sue 3AC’s estate to reclaim any assets that 3AC still had. 3AC simultaneously submitted counterclaims.
Despite 3AC’s assertions to the contrary, the court determined that the cryptocurrency in the Fireblocks wallets that it still controlled was in trust:
“It is not uncommon that a trust is found to exist notwithstanding the fact that it contradicts what relevant legal documents say.”
Moreover, Singapore was the proper venue for the lawsuit as, according to Singaporean law, the nation “had sufficient nexus” with the individual who resided there possessing the wallet keys.
