Three Arrows Capital, once a prominent and successful crypto-native hedge fund, faced a sharp decline in fortunes. The co-founders, known for their charismatic and attention-seeking behavior, reveled in the spotlight. However, when the fund suffered substantial losses in 2022 due to ill-advised investments in Luna tokens and other ventures, co-founders Su Zhu and Kyle Davies disappeared, leaving creditors with approximately $3 billion in unpaid debts.
After a prolonged absence from social media and speculation about their whereabouts, Zhu and Davies resurfaced in Dubai, claiming to be involved in launching OPNX, a platform for tokenized bankruptcy claims, including those related to bankrupt crypto exchange FTX. They began sharing photos and giving media interviews on platforms like X (formerly Twitter) from various destinations such as Thailand, Bali, Spain, and Malaysia.
During this time, Zhu and Davies engaged in a protracted dispute with Teneo, the firm appointed to unwind Three Arrows. Both parties accused each other of lack of cooperation. Teneo claimed that the founders, who maintained an active social media presence despite their company’s failure, failed to provide sincere cooperation. They accused Davies of disregarding court directives and hindering efforts by liquidators to access documents and information.
Zhu and Davies, on the other hand, accused Teneo of not engaging constructively to repay creditors. The arrest on Friday marked a turning point in the situation. Zhu, who had expressed concerns about going to jail in a previous Bloomberg interview, was apprehended at Changi Airport in Singapore while attempting to leave the country. He was detained for failing to comply with a court order to cooperate with Teneo. The firm stated that both Zhu and Davies had been sentenced to four months in prison through a committal order. Teneo aims to recover more than $1 billion directly from the two founders. Zhu and Davies did not respond to requests for comment.
Singapore’s financial regulator had already banned the duo from conducting regulated activities in the country for nine years. Davies’ current whereabouts are unknown, and his lawyers have not responded to requests for comment. Bloomberg News has reached out to the Singapore police for further information.
Zhu’s arrest adds to a series of legal actions against alleged crypto wrongdoings following major business collapses and fraud scandals that wiped out trillions of dollars in market value last year. FTX co-founder Sam Bankman-Fried was arrested in the Bahamas in December and is set to stand trial in New York on October 3. Former Celsius CEO Alex Mashinsky was arrested in July. Do Kwon, the creator of the collapsed Terra stablecoin and associated Luna token that contributed to Three Arrows’ downfall, is in custody in Montenegro, facing accusations of forging identity documents. All three individuals have denied the allegations against them.
Singapore is not the only jurisdiction taking action against these former hedge fund managers. Dubai’s crypto regulator fined Zhu, Davies, and OPNX’s management in May for violating marketing, advertising, and promotions regulations. Following Zhu’s arrest, the OX token associated with the OPNX platform experienced a drop of up to 40%, trading at around $0.013. CoinGecko data shows that the token reached an all-time high of $0.077 in August.
In the United States, where there has been a broad crackdown on crypto at the federal and state levels, authorities have been investigating whether Three Arrows misled investors and failed to register with local agencies, as reported by Bloomberg News in October.
Teneo stated that it will seek to engage with Zhu regarding matters related to Three Arrows and the recovery of lost funds while he is in prison. The estate has been gradually auctioning and selling Three Arrows’ assets to generate funds for creditors, including a failed attempt to sell the founders’ superyacht, “Much Wow,” for $30 million.