The High Court of Singapore has rejected an application by bankrupt crypto hedge fund Three Arrows Capital (3AC) to dismiss the suit brought by Cheong Jun Yoong, the founder of Web3 investment firm DeFiance Capital.
DeFiance Capital has argued that its assets and operations were separate from that of 3AC and should not be included in the liquidation process.
Singapore High Court Rejects 3AC Application
Cheong had filed the lawsuit against Three Arrows Capital in April 2023, claiming DeFiance Capital Investors were the ultimate beneficiaries of assets held in trust by Three Arrows Capital. Cheong argued that the 3AC estate could not use the trust funds to satisfy creditor claims against it. The lawsuit stated that the claimant had reached an agreement with 3AC founders Su Zhu and Kyle Davis to launch an independent and standalone fund on the 3AC platform. However, the claimant would control this fund while having access to 3AC infrastructure, such as its back-office infrastructure.
Court Backs DeFiance Capital
The fund, eventually named DeFiance Capital, had segregated accounts held in Cheong’s name. It paid Davies and Zhu 25% of the fees it bought in. As of May 2022, the fund held 22.3 million USDT and $98 million in other crypto and fiat currencies. Additionally, 3AC created sub-accounts for DeFiance Capital on its accounts held on FTX and Binance and a separate workspace on 3AC’s custody provider, Fireblocks. DeFiance Capital was eventually transferred out of 3AC when 3AC moved its headquarters to Dubai in 2022. However, certain assets were not transferred to DeFiance Capital according to a prior agreement.
3AC declared bankruptcy in July 2022, and the Singapore High Court allowed DeFiance Capital to sue the 3AC estate to recover assets. 3AC filed a counterclaim on the same day. The court acknowledged that crypto held in the Fireblocks wallet, which remained under the control of 3AC, was in trust despite 3AC’s protests.
“It is not uncommon that a trust is found to exist notwithstanding the fact that it contradicts what relevant legal documents say.”
A Positive Sign
The judge’s acknowledgment of the trust is a positive sign for DeFiance Capital, according to a former restructuring attorney going by the online name of WassieLawyer, who stated,
“This admission brings some “much-needed vindication” for Cheong.”
3AC was one of the world’s largest crypto hedge funds, but it began to tank in value thanks largely to its exposure to Terra. When 3AC declared bankruptcy, liquidators took over the 3AC estate and alleged that 3AC and DeFiance Capital operated as a single entity. However, WassieLawyer explained in a post on X that DeFiance Capital was only using 3AC’s legal structure, something it was paying a fee for.
However, DeFianceCapital never commingled its operations with 3AC.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.