FTX rejects 3AC’s $1.5B claim, citing ‘failed trading strategy’

Lawyers acting for the collapsed crypto exchange FTX have rebuked a $1.53 billion recovery claim from Three Arrows Capital’s liquidators, arguing the losses result from a risky trading strategy that should not be paid for by creditors.

Three Arrows Capital expanded claim approved by judge

3AC liquidators initially filed a $120 million claim in FTX’s bankruptcy case in June 2023 and expanded it to $1.53 billion in November 2024, alleging claims including breach of contract, fiduciary duty and unjust enrichment.

The liquidators alleged FTX held $1.53 billion in the hedge fund’s assets that were liquidated to settle liabilities in 2022, contributing to 3AC’s collapse, arguing the transactions were avoidable and FTX debtors had delayed providing the information that would have uncovered the liquidation

Chief Judge John Dorsey agreed and granted the motion in March

FTX says claims are illogical and baseless

In an objection filed on Friday in the US Bankruptcy Court for the District of Delaware, FTX lawyers said the claims were “illogical and baseless.”

They argued that 3AC “bet big,” that crypto prices would increase, and when they instead plummeted, the firm became a victim of its “own risky strategy.”

“The Joint Liquidators ask this Court to force other Exchange customers and creditors to foot the bill for 3AC’s failed strategy by asserting illogical and baseless claims for $1.53 billion,” FTX’s lawyers said.

There is also a dispute over the account balance and how 3AC arrived at the $1.53 billion figure. FTX lawyers argue it relied on inaccurate account balances from June 12, 2022, when the firm’s crypto balance was $1.02 billion, not $1.59 billion, and the negative United States dollar (USD) amount was $733 million, not $1.3 billion.

The lost asset theory, which FTX said is the crux of 3AC’s argument, is based on the crypto balance on June 12, 2022, and asks to “recover essentially all of” the balance lost in subsequent days.

“But this is a false premise that lacks any legal or factual merit, and, in fact, 3AC is owed nothing,” the lawyers said.

FTX claims 3AC only had an available balance of $284 million, which was further chipped away by crypto market price declines and withdrawals by 3AC of $60 million.

FTX’s lawyers argue the liquidators of 3AC have overinflated the value of the account balances. Source: Kroll Restructuring Administration## FTX says liquidation was only for $82 million

In the objection, lawyers acting for FTX claim the only liquidation against 3AC was for $82 million in crypto, which was “contractually permitted” under the credit and margin agreements to ensure the firm complied with account balance requirements

It’s also claimed in the objection that the liquidation did not reduce the overall account balance because the value was added to the fiat 3AC account in USD.

“Notably, the $82 million Liquidation benefited 3AC by preserving the value of the 3AC Accounts. Through the Liquidation, 3AC exited deteriorating positions in digital assets in favor of stable positions in fiat currency,” FTX said in the objection.

3AC has until July 11 to file a reply to FTX’s objection. A non-evidentiary hearing is set for Aug. 12 before Chief Judge Karen Owens in the US Bankruptcy Court for the District of Delaware.

Related: Three Arrows Capital seeks to increase claim against FTX to $1.5B

FTX and 3AC hunting down alleged debts

3AC has also pursued claims against collapsed crypto firm Terraform Labs through a $1.3 billion claim in Terra’s bankruptcy case.

FTX, which filed for bankruptcy in November 2022, has also been undertaking its own recovery efforts to reclaim funds with a flurry of lawsuits

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