In a significant development within the ongoing bankruptcy proceedings of the collapsed crypto exchange FTX, a Delaware bankruptcy court has approved an increase in the claim of failed hedge fund Three Arrows Capital (3AC) from $120 million to $1.53 billion.
Court Ruling Impacts FTX’s Asset Allocation
The legal dispute centers on allegations that FTX liquidated $1.53 billion worth of 3AC’s assets just two weeks prior to the hedge fund’s own collapse in 2022. FTX contended that this liquidation was imperative to fulfill a $1.3 billion loan obligation.
However, the court found insufficient evidence to substantiate FTX’s justification for this action, indicating potential mismanagement of funds during one of the most tumultuous periods in the crypto industry.
With this ruling, the court has significantly reshaped the landscape for how FTX’s remaining assets will be allocated among a multitude of creditors.
FTX’s estate had opposed the expansion of 3AC’s claim, arguing that the request was untimely and could hinder the bankruptcy process, which had already begun distributing funds in Q1 2025.
The exchange further asserted that the increased claim would further delay and complicate payouts to other creditors who have been waiting for their due compensation.
A Troubled Legacy As Legal Battles Continue After Their Collapse
Despite these objections, the court determined that the delay in filing the claim by 3AC was justified. The ruling cited missing financial records and a lack of transparency from FTX, which hindered 3AC’s liquidators from accurately assessing their full claim sooner.
Before their respective downfalls, 3AC and FTX were intricately linked within the crypto ecosystem. At its zenith, 3AC managed over $3 billion in net assets and was recognized as one of the most influential hedge funds in the market.
However, its collapse in mid-2022 triggered a domino effect, leading to a broader decline in the cryptocurrency sector and exposing significant financial instability and possible misconduct associated with Sam Bankman-Fried’s FTX empire.
Sam Bankman-Fried, the former CEO of FTX, is currently appealing his conviction and a 25-year prison sentence stemming from charges related to fraud and conspiracy.
Meanwhile, 3AC co-founder Zhu Su has been sentenced to four months in prison in Singapore for failing to cooperate with liquidators, while his partner, Kyle Davies, has managed to avoid legal consequences tied to the hedge fund’s collapse.
At the time of writing, the exchange’s native token, FTT, is trading at $1.29, down 4% in the 24-hour time frame and 98% off its record high of $84 reached before the exchange collapsed.
Featured image from DALL-E, chart from TradingView.com
