Singapore's High Court has dismissed an application by the bankrupt cryptocurrency hedge fund Three Arrows Capital (3AC) to have a lawsuit filed against it by Arthur Cheong, the founder of Web3 investment firm DeFiance Capital, dismissed. Cheong, in his lawsuit filed in April 2023, contended that investors in DeFiance Capital were the ultimate beneficial owners of 3AC trust assets. He argued that the 3AC estate should not utilize the funds to settle creditor claims against it. The court rejected 3AC's attempt to dismiss the case, allowing Cheong's claims to proceed.
In response to the legal dispute, an agreement was reached between Cheong and 3AC founders Su Zhu and Kyle Davies to establish an "independent and independent fund on the 3AC Group platform." This fund, named DeFiance Capital, operates with ownership and control vested in Cheong. It has access to various 3AC resources, including mid- and back-office infrastructure, fund managers, and auditors. The DeFiance Capital fund, with segregated accounts and wallets in Cheong's name, paid Zhu and Davis 25% of their introduction fees.
In May 2022, the DeFiance Capital account held $22.3 million in USDT and $93.8 million in other cryptocurrencies and fiat currencies. 3AC created sub-accounts for DeFiance Capital within its FTX and Binance accounts, along with a separate workspace on the platform of 3AC's custody provider Fireblocks. After 3AC moved its headquarters to Dubai in 2022, DeFiance Capital was transferred out of 3AC and registered as two entities in Singapore. However, certain assets were not transferred as per previous agreements, and the court decision did not specify the value of these assets.
Three Arrows Capital declared bankruptcy in July 2022. In November, the Singapore High Court granted DeFiance Capital the right to sue 3AC's estate to recover assets still controlled by 3AC. A counterclaim was filed by 3AC on the same day. The court determined that cryptocurrencies in Fireblocks wallets, allegedly still controlled by 3AC, were held in trust, contrary to 3AC's assertions that the claim lacked merit. The court emphasized that a trust could be established despite contradictions in the underlying legal documents. Additionally, the court deemed Singapore an appropriate forum for the action due to the person controlling the wallet keys being located in Singapore and having a "sufficient nexus" under Singapore law.
