US court allows 3AC to expand FTX claim to $1.5 billion; FTX argues reorganization plan at risk

A U.S. bankruptcy court has given permission to failed crypto hedge fund Three Arrows Capital to increase its claim against FTX from $120 million to $1.53 billion.

The U.S. Bankruptcy Court for the District of Delaware on Thursday ruled in favor of 3AC's amended claims despite the FTX bankruptcy estate's objection arguing that it came too late. The court said 3AC liquidators provided timely notice of their claim, and that the significant delay was largely caused by FTX debtors' delayed record sharing.

"[Evidence] suggests that the Liquidators were diligent in attempting to obtain the information and that despite having the complete information in their possession, the Debtors repeatedly delayed giving it to them," the court filing said.

The collapsed hedge fund filed its original $120 million claim in June 2023 and later requested an expansion to the current amount to include claims for breach of contract, turnover, unjust enrichment, breach of fiduciary duty, restitution, and other damages.

The FTX bankruptcy estate had argued that the "outsized" scale of 3AC's new claims would impose "significant prejudice" on their part and disrupt the implementation of its reorganization plan , which it said was negotiated without knowledge of 3AC's new claims.

The FTX began the initial distribution of funds to creditors last month, with plans to reimburse remaining creditors in the coming months.

The court, nonetheless, ruled that FTX offered little evidence to back its position. It also stated in the latest ruling that 3AC's original claim had stipulated the possibility of later asserted claims on FTX.

Three Arrows Capital, once a prominent crypto hedge fund founded by Su Zhu and Kyle Davies, collapsed in 2022 as a result of liquidity issues following the implosion of the Terra-Luna ecosystem. It was later revealed that the company operated with insufficient risk management measures. 

The Block reached out to the FTX bankruptcy estate for comment on the matter.