Defunct cryptocurrency hedge fund Three Arrows Capital’s (3AC) liquidators have filed a lawsuit against Terraform Labs for $1.3 billion, as reported by Bloomberg. The liquidators claim that TerraForm manipulated the market for Luna and TerraUSD, leading to substantial losses for 3AC after the crash in 2022.
The legal battle began in June 2023 when the liquidators demanded $1.3 billion from 3AC founders Su Zhu and Kyle Davies. The troubles started in May 2022 when the Terra network experienced a significant collapse in the value of its algorithmic stablecoin, terraUSD (UST), and LUNA tokens, despite assurances from co-founder Do Kwon. By July of the same year, 3AC had to declare bankruptcy due to the severe losses caused by Terra’s downfall.
According to court documents cited by Bloomberg, the lawsuit alleges that TerraForm engaged in market manipulation to entice 3AC into purchasing Luna and TerraUSD at artificially inflated prices before their value plummeted. This led to substantial financial harm to the hedge fund, resulting in the massive legal claim.
In a separate development, Terraform Labs filed for bankruptcy in the U.S. state of Delaware in January 2024. Furthermore, Do Kwon, one of the co-founders of Terra, was recently found guilty of civil fraud charges by a Manhattan jury following a case brought by the U.S. Securities and Exchange Commission (SEC) in April 2024.
Do Kwon is currently in Montenegro, where he has been staying since his arrest in March 2023 for attempting to use forged travel documents. His extradition is pending a final decision from Montenegro’s authorities, with both South Korean and U.S. officials seeking his return to face legal proceedings in their respective jurisdictions.
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In conclusion, the legal battle between Three Arrows Capital’s liquidators and Terraform Labs highlights the complexities and risks involved in the cryptocurrency industry. Market manipulation and regulatory challenges continue to pose significant threats to investors and firms operating in the digital asset space. As the case progresses, it will be interesting to see how the courts adjudicate the claims and counterclaims put forth by the parties involved.