Legal Disputes Surrounding FTX and Three Arrows Capital’s Bankruptcy Proceedings
FTX Lawyers Challenge $1.53 Billion Claim from 3AC Liquidators
Attorneys representing the now-defunct cryptocurrency exchange FTX have publicly dismissed a substantial recovery claim of $1.53 billion filed by the liquidators of Three Arrows Capital (3AC). They contend that the losses attributed to 3AC stem from high-risk trading tactics that creditors should not be compelled to cover.
Initially, in June 2023, the 3AC liquidators submitted a $120 million claim against FTX during its bankruptcy proceedings. This figure was later escalated in November 2024 to a staggering $1.53 billion, citing allegations of breach of contract, breach of fiduciary duty, and unjust enrichment. The liquidators assert that FTX held assets worth $1.53 billion belonging to 3AC, which were liquidated in 2022 to settle outstanding liabilities, thereby contributing to 3AC’s downfall. They further claim that these transactions could have been avoided had FTX provided timely and accurate information, which was allegedly withheld or delayed.
In March, Chief Judge John Dorsey approved a motion supporting the liquidators’ position, reinforcing the legal stance that FTX’s actions may have been improper.
FTX’s Rebuttal: Claims Are Without Merit and Illogical
FTX’s Legal Team Denounces the Claims as Groundless
In a formal objection filed last Friday with the U.S. Bankruptcy Court for the District of Delaware, FTX’s legal representatives dismissed the $1.53 billion claim as “illogical and baseless.” They argue that 3AC engaged in aggressive speculation, betting heavily on the rise of cryptocurrency prices. When the market turned sharply downward, 3AC became a victim of its own risky investment approach.
FTX’s attorneys criticized the liquidators’ attempt to shift the financial burden onto other exchange users and creditors, asserting that the claims lack both factual and legal foundation. They emphasized that the claim’s core-referred to as the “lost asset theory”-is predicated on an outdated snapshot of 3AC’s account balance from June 12, 2022. According to FTX, at that time, 3AC’s crypto holdings were valued at approximately $1.02 billion, not the $1.59 billion claimed, and the USD equivalent was negative $733 million, not the $1.3 billion alleged.
The legal argument hinges on the assertion that the claim seeks to recover “virtually all” of the assets lost in subsequent days, based solely on the June 12 balance, which FTX disputes as a false premise with no legal or factual basis. They further state that 3AC’s actual available balance was only around $284 million, diminished further by market declines and withdrawals totaling $60 million.
Visual Aid: Overinflated Account Balances?
An infographic illustrates how FTX’s legal team contends that the liquidators have exaggerated the account balances of 3AC, suggesting the claimed figures are inflated beyond actual holdings.
Disputing the Scope of Liquidation and Asset Recovery
Limited Liquidation Amounts and Their Impact
FTX’s legal representatives also challenge the extent of the liquidation process, asserting that only $82 million in crypto assets was liquidated against 3AC. This action was conducted under contractual agreements to ensure compliance with account balance requirements, and it was deemed “contractually permitted.” The liquidation was designed to prevent the account from falling below minimum thresholds, not to wipe out the entire asset base.
Furthermore, FTX claims that this liquidation did not diminish the overall account value because the liquidated assets were converted into USD, effectively preserving the account’s total value. They argue that the process allowed 3AC to exit deteriorating positions in digital assets and shift into stable fiat currency, thus safeguarding the remaining assets.
Upcoming Legal Proceedings
3AC has until July 11 to respond to FTX’s objections. A preliminary hearing without evidence presentation is scheduled for August 12 before Chief Judge Karen Owens in the Delaware bankruptcy court.
Broader Litigation and Recovery Efforts
Claims Against Other Crypto Entities
Beyond its dispute with 3AC, FTX has initiated legal actions against other entities, including Terraform Labs, in an effort to recover funds. The firm has filed a claim exceeding $1.3 billion in Terraform’s bankruptcy case, reflecting its broader strategy to recoup assets lost during the crypto market downturn.
Since filing for bankruptcy in November 2022, FTX has been actively pursuing recovery through multiple lawsuits, aiming to restore as much value as possible for its creditors and stakeholders.
In Summary
The ongoing legal battle between FTX and 3AC’s liquidators highlights the complexities of cryptocurrency insolvencies, where asset valuations, trading strategies, and contractual obligations intersect. As the case unfolds, it underscores the importance of transparency and accurate record-keeping in the volatile world of digital assets, especially amid high-profile collapses that continue to shake investor confidence.
