Liquidators of Three Arrows Capital Sue Terraform Labs for $1.3 Billion
Liquidators representing Three Arrows Capital (3AC) have initiated a lawsuit against Terraform Labs, demanding $1.3 billion in damages following the collapse of the TerraLUNA cryptocurrency. This legal action, filed on August 12, accuses Terraform Labs of manipulating the prices of its tokens, LUNA and TerraUSD, which resulted in catastrophic losses for 3AC.
The Downfall of Three Arrows Capital
Once a significant entity in the cryptocurrency market, Three Arrows Capital faced a dramatic decline in 2022, leading to losses amounting to $3.3 billion. In the aftermath of this collapse, the firm’s liquidators have been actively exploring various avenues to recover funds for creditors. Terraform Labs, founded by Do Kwon, has emerged as the latest target in their ongoing legal efforts.
Allegations of Price Manipulation
The lawsuit claims that Terraform Labs artificially inflated the prices of LUNA and TerraUSD, which misled 3AC into making substantial investments in these assets. The subsequent crash of these tokens resulted in significant financial losses for the hedge fund, further complicating its financial situation.
This legal action follows prior investigations by the liquidators regarding the whereabouts of billions in assets linked to 3AC’s founders, Su Zhu and Kyle Davies, as they work to compensate creditors impacted by the hedge fund’s downfall.
Terraform Labs Faces New Legal Challenges
Already facing a series of legal issues and financial difficulties, Terraform Labs is now tasked with confronting this new lawsuit. The company has been under increased scrutiny since the LUNA crash and has recently sought Chapter 11 bankruptcy protection in the United States.
Court documents indicate that Terraform Labs’ assets are valued between $100 million and $500 million, which is significantly less than the $1.3 billion being sought by 3AC.
Additional Financial Liabilities
Compounding its challenges, Terraform Labs is also responsible for approximately $4.5 billion in penalties to the U.S. Securities and Exchange Commission (SEC) following a settlement regarding the LUNA crash. A ruling by the SEC in June stipulates that a considerable portion of these penalties must be allocated for compensating Terraform Labs’ creditors.
The substantial financial liabilities and ongoing legal disputes raise concerns about Terraform Labs’ ability to meet the demands of the 3AC lawsuit. With its assets already stretched and its future uncertain, the firm’s capacity to fulfill the claims against it is in serious doubt.
Implications for the Cryptocurrency Industry
As the case unfolds, its outcome could have significant repercussions for both the cryptocurrency sector and the ongoing efforts to hold accountable those responsible for the TerraLUNA collapse. This lawsuit marks another chapter in the lengthy legal battles arising from one of the most controversial incidents in recent cryptocurrency history.
