The US legal system — a labyrinthine set of definitions that usually requires the best-paid and smartest lawyers to defend against any claim — is being tested by one of the founders of Three Arrows Capital (3AC): Kyle Davies.
Davies is suggesting that due to his supposed renunciation of his US citizenship, he can no longer be tried under US laws. It’s a bold — and, historically, unsuccessful strategy — but maybe this time it’ll pan out.
The sov cit movement and citizenship renunciation
While Davies’ arguments may seem novel, sovereign citizen proclamations are nothing new to the United States or to the cryptocurrency industry. Indeed, many US citizens have attempted to outrun the long arm of the law either by stating that they don’t fall under the jurisdiction of US courts or by renouncing their citizenship altogether. Unfortunately for them, it almost never ends well.
Davies states that he’s “not subjecting [himself] to, or accepting the jurisdiction of, the courts in the United States.” According to experts, that won’t stop US prosecutors.
The laws regarding the renunciation of citizenship in the US explicitly outline that “the act of renouncing US citizenship does not allow persons to avoid possible prosecution for crimes which they may have committed or may commit in the future which violate United States law, or escape the repayment of financial obligations… previously incurred in the United States or incurred as United States citizens abroad.”
Of course, Davies didn’t actually renege on his US citizenship after the collapse of 3AC, he did it back in 2020, after he’d married his Singaporean wife and had a child. In other words, the financial improprieties that he may have committed likely occurred after he had already renounced his citizenship.
That isn’t enough to avoid US jurisdiction, however.
A lawyer familiar with US fraud laws said: “Whether Davies is a US citizen has nothing to do with whether his actions caused harm and is irrelevant as to whether he’s subject to the jurisdiction of the Southern District of New York (SDNY).”
Some ambiguity, but not what Davies states
There is some room for legal finagling about whether a US court can compel an individual to appear. As stated by Davies’ lawyer, they entered “a limited appearance on behalf of non-party Kyle Davies solely for the purpose of contesting service/personal jurisdiction.”
This is a real argument that’s applied regularly to many aspects of the US legal system. A hypothetical example would be if a matter for small claims court is brought before a federal judge. The individual being sued would either move to have the trial sent to the proper jurisdiction or have the trial fully vacated. If the court agreed, it would rule as such.
It’s unclear if this legal maneuvering will actually work for Davies, but a lawyer familiar with the case said unambiguously that, “Biding time is a legal strategy that can be abused.”
Three Troubles Capital
It’s worth reading an additional filing by the Counsel to the Foreign Representatives of 3AC. The filing points out that, not only has Davies been absent from US bankruptcy court, but his partner-in-crime, Su Zhu, has been impossible to find in Singapore.
The Representatives are seeking “to penalize Zhu for his failure to comply with an order from the Singaporean Court.” Additionally, the Representatives are seeking $1.3 billion in claims in British Virgin Islands court and a possible chapter 11 bankruptcy filing, increasing the claims by $200 million more.
This brings total claims to $1.5 billion, spread across three separate jurisdictions.
While the nexus of the actions under consideration is the only determinant as to whether the SDNY has jurisdiction over the bankruptcy proceedings, citizenship could prove to be pivotal in whether a criminal gets extradited.
Unfortunately for Davies, Singapore has a long-standing extradition treaty with the US, so if extradition is demanded and he’s truly residing in Singapore, he will be returned to the US to face trial.