The Singapore High Court has rejected Three Arrows Capital’s (3AC) application to dismiss a lawsuit brought by Arthur Chong, founder of Web3 investment firm Defiance Capital.
The latest decision marks a pivotal moment in the ongoing legal battle between the two companies, and sheds light on the complexities of asset ownership and trust in the crypto space.
Origins of the DeFiance vs. 3AC dispute
Arthur Chong’s lawsuit, which began in April 2023, centers on the claim that Defiance Capital’s investors are the legitimate beneficiaries of assets held in trust by 3AC. Chong’s claims challenge the 3AC Foundation’s use of these funds to settle creditor claims following the hedge fund’s bankruptcy.
The dispute dates back to an agreement between Cheong and 3AC founders Su Zhu and Kyle Davies to establish DeFiance Capital as an independent fund within the 3AC Group platform. The arrangement gave DeFiance Capital access to 3AC’s resources, including its infrastructure and service providers, while maintaining a segregated account and wallet in Cheong’s name.
Despite a cooperative beginning, tensions arose when 3AC moved its headquarters to Dubai in 2022, leading to Defiance Capital being incorporated as two separate entities in Singapore. A key issue is the alleged failure to transfer certain assets to Defiance Capital as per the original agreement, the value of which has not yet been specified in the court’s ruling.
In November 2023, the Singapore High Court granted permission for the Singapore High Court to proceed with proceedings against 3AC’s assets following its bankruptcy in July 2022. The proceedings have taken an important turn. This ruling was supported by the court’s finding of a trust for the crypto assets in question, even though 3AC’s counterclaim dismissed the merits of the case.
The court further emphasized that Singapore’s jurisdiction is the appropriate forum for this action, given the location of the individuals controlling the disputed wallet keys and the legal relationship established under Singapore law.
As a former restructuring lawyer named WassieLawyer online pointed out, the judge’s certification of the trust, while not completely resolving DeFiance’s situation, is seen as an encouraging sign for the company. He said the approval would give Chong “a much-needed vindication.”
Fallout of 3AC’s investment strategy
Three Arrows Capital (3AC), once the world’s leading crypto hedge fund, is investing in Terra, Ethereum, which owns shares, founders Hsu Zhu and Kyle Davis said in an interview with Bloomberg. , who faced a downturn due to his investment in Grayscale’s Bitcoin Trust. The company decided to liquidate its holdings in the entire crypto sector, leading to its bankruptcy filing on June 30, 2022.
Founded in 2020, DeFiance is an investment company focused on decentralized finance and GameFi. According to its website, it supports projects such as dYdX, Aave, and Lido.
After liquidators took over 3AC’s assets in 2022, allegations emerged, supported by legal documents, that 3AC and DeFiance Capital were operating as a single entity.
On January 31, WassieLawyer shared on Twitter that DeFiance is only using the 3AC legal framework for a fee, without integrating its operational activities. This distinction in legal language is important for his 3AC creditors seeking to access DeFiance Capital’s funds.
Wassey noted that there is an ongoing debate between substance and form in the 3AC case, and that this distinction is likely to be useful in discussions that focus on Defiance’s actual operations. the judge pointed out.
In December 2023, crypto.news reported on the interrogation of 3AC co-founder Su Zhu by Teneo’s lawyers. Their liquidator was tasked with investigating the fund’s failure and discovering the crypto assets. According to reports, the incident occurred after Zhu was arrested at Singapore’s Changi Airport on September 29 as he was leaving the country.
Mr. Zhu’s arrest and subsequent four-month detention was due to his lack of cooperation with 3AC’s liquidation process. He was released in December 2023. Meanwhile, efforts to locate 3AC’s other co-founder, Kyle Davis, have so far been unsuccessful.