CFTC To Investigate How Three Arrows Capital Used User Funds

The U.S. regulators have finally decided to step into the investigation of failed hedge fund Three Arrows Capital (3AC), which was one of the major causes of this year’s crypto market crash.

The collapse of the Terra ecosystem in May pushed 3AC into a major collapse from being the world’s largest crypto hedge fund. Two of the top U.S. regulators – the SEC and the CFTC – are investigating whether the 3AC manager violated rules by misleading investors regarding the strength of the company’s balance sheet without registering with the authorities.

The sources familiar with the matter told Bloomberg that the scrutiny from the regulators can lead to additional penalties for the firms and the individuals.

Currently, the whereabouts of Three Arrows founders Su Zhu and Kyle Davies remain unknown. During its peak period, 3AC had a few billion dollars of assets under management. However, to its overexposure to the Terra ecosystem, the fund suffered major losses post the collapse of the TerraUSD stablecoin.

As the Terra collapse spread across the broader crypto market, 3AC was unable to meet margin calls from its lenders and had to declare bankruptcy. A month ago liquidators seized control of the funds at 3AC worth tens of millions of dollars at the request of the Singapore high court.

But the court-appointed liquidator Teneo stated that 3AC founders didn’t comply with the unwinding process. As per the court documents filed last week, the liquidator asked the U.S. judge to serve a subpoena to the 3AC founders.

Investigation From U.S. Regulators

In addition to Three Arrows Capital, other defunct crypto firms like Celcius Capital are also facing an investigation from U.S. regulators. Lawyers at Celsius disclosed that they have received a subpoena from the US District Court for the Southern District of New York. Besides, they have also received inquiries from the U.S. SEC, CFTC, and the Federal Trade Commission.

The CFTC is investigating whether Celsius failed to disclose how the customer’s funds were used. But the CFTC and the SEC aren’t the only regulators to look into the dealings of 3AC. The Monetary Authority of Singapore also reprimanded the failed hedge fund for providing false information and exceeding the limit on its AUM.

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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