Three Arrows Capital Co-Founder Detained in Singapore; Partner Still at Large

Gate's liquidation team has confirmed the arrest of Su Zhu, co-founder of the defunct hedge fund Three Arrows Capital (3AC), in Singapore. This development was initially reported by the digital news aggregator db (@tier10k on X).

According to the liquidators, Zhu's detention and subsequent sentencing are a result of his non-compliance with 3AC's insolvency proceedings. Meanwhile, Kyle Davies, Zhu's business partner and fellow 3AC co-founder, is currently being sought by Singaporean law enforcement but remains unapprehended.

A Series of Shutdowns

The downfall of 3AC sent shockwaves through the cryptocurrency sector, given its prominent standing and substantial investments in ventures like LUNA, Aave, Avalanche, BlockFi, Deribit, and Solana. Industry analysts suggest that the firm's downfall was rooted in its lack of robust risk management practices, coupled with reckless trading strategies and unchecked greed.

The domino effect leading to 3AC's demise was set in motion by the collapse of LUNA, one of the fund's primary investments, in May. Despite once managing crypto assets valued at approximately $18 billion at its zenith, 3AC failed to meet margin requirements in June, fueling speculation about its financial stability. The situation further deteriorated when the firm defaulted on a $665 million loan from a cryptocurrency lending platform, exacerbating instability across the industry.

Singapore's financial regulator, the Monetary Authority of Singapore (MAS), played a crucial role in exposing the firm's questionable practices. In September, MAS imposed a nine-year prohibition on 3AC founders Su Zhu and Kyle Davies. The regulatory body's investigation unveiled that 3AC had failed to notify the authority about the appointment of Cheong Jun Yoong Arthur as its portfolio manager and had misrepresented his employment status. These transgressions were attributed to Zhu and Davies' negligence in fulfilling their duties, compounded by an inadequate risk management framework.

The ripple effects of 3AC's collapse extended far beyond its immediate stakeholders, impacting numerous entities within the cryptocurrency ecosystem. As 3AC defaulted on its financial obligations, it triggered a chain reaction that forced other firms into insolvency. The fallout resulted in losses surpassing $3 billion, affecting a total of 27 companies across the industry.