The whereabouts of Three Arrows Capital (3AC) co-founders Su Zhu and Kyle Davies remain unknown. This could be because they are facing not only civil, but also criminal indictments.
Su Zhu has expressed concern about facing possible criminal charges for being found “in contempt of the court” after apparently not co-operating with the court-appointed liquidators.
Despite the severity of the situation, it seems 3AC are not going down without a fight.
Su Zhu has called a Thai criminal affidavit “draconian”, and alleges that liquidators purposely misled the High Court of Singapore about 3AC’s structure.
Zhu’s defense claims that the 3AC entity in question, Three Arrows Capital Pte Ltd (TACPL), has not held a license in Singapore since July 2021. According to Zhu, another 3AC-affiliated company, ThreeAC LTD, took its place. The affidavit shows that TACPL stopped serving as an investment manager for both master and feeder funds in September 2021.
Possible rationale for criminal charges
3AC was borrowing money to pay off other loans. If they lied about the reason for obtaining these loans or for wiring money between accounts, then they could be facing fraud charges.
Also, after the apparent disagreements during court proceedings, if Su Zhu is found guilty of contempt of court, he and other TACPL officials could face fines and jail time.
A court-appointed liquidation firm named Teneo alleges that Su Zhu and Kyle Davies have repeatedly failed to cooperate with efforts to liquidate 3AC’s assets. Zhu has denied those allegations. He claims that 3AC’s legal counsel attempted to cooperate with the liquidation, but were met with “baiting”.
The Monetary Authority of Singapore reprimanded 3AC for providing “false or misleading” information and is currently investigating whether they have committed further criminal violations.
Warning signs for 3AC’s bankruptcy
Even before the very public meltdown of 3AC, the firm showed signs of stress. It had invested millions of dollars in Do Kwon’s LUNA, the token used as a counterweight to the algorithmic stablecoin TerraUSD.
Some rumors indicate that 3AC borrowed money from organized crime rings, which could explain why the co-founders went into hiding. Attorneys say that the co-founders have also received death threats.
Some lenders have also accused 3AC of padding their books by commingling client funds with company funds to make the company appear in better shape than it was.
3AC allegedly threatened to boycott Blockchain.com when it tried to call in a large portion of a $270 million loan. “Once that happened, we knew something was wrong … We firmly believe they committed fraud. There’s no other way to state it — that’s fraud, they lied,” said Lane Kasselman, an officer of Blockchain.com.
Kasselman also called the co-founders’ attempts to keep the company afloat by taking out loans to pay back other loans a Ponzi scheme of the same sort that Bernie Madoff went to jail for.
When 3AC filed for bankruptcy in a New York court, Su Zhu filed a $5 million claim. Davies’ wife, Kelly Kaili Chen, filed one for $66 million. They claimed to have loaned 3AC money, though they could not prove it beyond personal attestations.
Reportedly, the co-founders are now hiding in Dubai, where they had established 3AC headquarters and bought apartments when 3AC was still appearing to be doing well. Dubai does not have an extradition treaty with the US or Singapore.
Many crypto industry participants wonder if any global authority will file not just civil, but also criminal charges against Zhu and Davies.