3AC co-founders heading to Dubai, want orderly liquidation: report

3AC co-founders heading to Dubai, want orderly liquidation: report

Su Zhu and Kyle Davies are finally opening up about the collapse of their hedge fund Three Arrows Capital (3ac) after insolvency administrators accused them of failing to cooperate with claims from creditors.

The 35-year-old, who founded the company at the kitchen table in 2012, spoke to us Bloomberg in a wide-ranging interview about the fund's inability to meet margin calls on loans, which they now regret.

Both stressed that they had suffered deep losses and refused to take money out of the fund before it collapsed. Zhu claimed he had put more money into the fund at the time of the collapse.

Bankruptcy trustees for 3AC's creditors said in a July 8 filing that both co-founders failed to cooperate meaningfully and would not speak when asked questions on a Zoom call. Court records show that their lawyers spoke of Advocatus and Solitaire instead.

But Zhu told Bloomberg that the details of the call with Davies and two Solitaire lawyers did not mean they were not cooperating with "all relevant authorities." A lawyer said both co-founders were on their way to the United Arab Emirates, but did not reveal where they were speaking from.

3AC's bankruptcy triggered a meltdown among crypto lenders, partially contributing to the downturn in crypto markets and a liquidity crisis for several companies, including Voyager and Celsius. The fund had a long list of counterparties whose money depended on its ability to stay afloat.

But the strategy of borrowing money from across the industry and making investments in emerging projects suffered from the collapse of stablecoin TerraUSD, tripping up investors who had made concentrated bets on the company.

“The whole situation is unfortunate,” Davies told Bloomberg. “A lot of people lost a lot of money.”

3AC now owes about 27 crypto firms $3.5 billion, with crypto brokerage Genesis the largest creditor with a claim of $2.3 billion. So far, bankruptcy administrators have reportedly managed to seize assets Worth $40 million.

Zhu said they positioned themselves for a "kind of market that ultimately didn't materialize" and the contagion that spread to other companies wasn't shocking since they all have similar revenue-generating strategies.

Defending speculation about lavish lifestyles

A recent affidavit filed by 3AC's bankruptcy trustee Russell Crumpler says Zhu and Davies put down a down payment on a $50 million yacht, meaning they used the fund's assets for extravagant personal expenses.

Zhu said the yacht, which has a "full cash trail," was purchased more than a year ago and was intended to be used in Europe. He claimed that he does not have a lavish lifestyle, that he cycles to and from work every day and that his family only owns two houses in Singapore.

He further defended their lifestyle by saying they were not seen in clubs or driving Ferraris and Lamborghinis, and that speculation about their lives was just an attempt at slander.

'Nail in the coffin'

3AC's troubles came shortly after the sudden collapse of TerraUSD and its sister token LUNA, which wiped out the savings of thousands of investors. The fund that invests approximately 200 million dollars LUNA suffered heavy losses as a result.

Zhu told Bloomberg that 3AC may have been too close to Terra founder Do Kwon when he moved to Singapore and believed the project would "do very big things." He described it as a “long-term capital moment” in which 3AC engaged in different types of trades.

“And then they were all written off super quickly,” he said.

LUNA's collapse didn't have an immediate impact on 3AC, but the real blow was Bitcoin's decline from $30,000 to $20,000.

“That ended up being kind of the nail in the coffin,” Zhu said.

Overconfidence in the long-running bull market, in his view, contributed to both the fund's and the industry's lenders' own failures. 3AC's partners are aware of the risks involved and their website has never described itself as risk-free, he added.

Both Zhu and Davies now want to keep a low profile and hope for an orderly wind-up of their fund assets.

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The article 3AC founders on the way to Dubai, want orderly liquidation: The report is not financial advice.