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Crypto Crisis: More Bad News For a Failing Hedge Fund

Three Arrows Capital (3AC) has become the first big domino to fall in the current crisis of confidence affecting the crypto industry.
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The crisis of confidence that is currently shaking the crypto industry has just made a new victim and not the least. 

Singapore-based hedge fund Three Arrows Capital (3AC) has been forced by a court in the British Virgin Islands to enter liquidation, an unnamed source told TheStreet on June 29. 

Restructuring firm Teneo has been appointed alongside another liquidator to handle the process, the primary purpose of which is to protect 3AC's assets, the source said. The hedge fund paid out its exposure of just over $200 million to the cryptocurrency Luna and its sister UST or TerraUSD, which collapsed in May causing the disappearance of at least $55 billion.

These colossal losses have caused liquidity problems for several crypto lenders, which means that some of them will find it difficult to meet their margin calls. It is therefore no surprise that some such as Celsius Network or Babel Finance have suspended withdrawal operations. 

3AC Subject to Potential Investigation in Singapore

But for 3AC, the liquidation also opens a new front of concern: the regulators.

Singapore's central bank accuses the hedge fund of providing false information and for exceeding the threshold set for assets under management. 

The Monetary Authority of Singapore (MAS) said it reprimanded 3AC because it "had represented to MAS that it had novated the management of its fund to an unrelated offshore entity with effect from 1 September 2021."

"However, this representation was misleading as [3AC] and the offshore entity shared a common shareholder, Mr Su Zhu," MAS said in a press release.

The central bank adds that 3AC was authorized to manage funds for 30 investors up to S$250 million ($180 million) when it registered as a fund management company in Singapore in 2013.

But 3AC ended up managing more than that.

Therefore, "in light of recent developments which call into question the solvency of the fund managed by [3AC], MAS is assessing if there were further breaches by [3AC] of MAS’ regulations."

3AC didn't immediately respond to a request for comment.