3AC subpoenas issued as dispute grows over claims of Terraform dump

Published at: Dec. 7, 2022

A federal judge overseeing Three Arrows Capital’s (3AC’s) bankruptcy proceedings has signed an order approving subpoenas to be delivered to 3AC’s former leadership, including co-founders Su Zhu and Kyle Davies.

The subpoenas require the founders to give up any “recorded information, including books, documents, records, and papers” in their custody that relates to the firm’s property or financial affairs.

The infamous hedge fund, worth $10 billion at its peak, filed for Chapter 15 bankruptcy on Jul. 1 with its troubles tied up in too much leverage and the collapse of Terra Luna (LUNA), known now as Terra Classic (LUNC), and its algorithmic stablecoin formerly known as TerraUSD (UST).

Since then, the liquidators — advisory firm Teneo — have been trying to hunt down the firm’s assets and pin down the 3AC's co-founders.

The latest order allowing for the subpoenas will require recipients to give up any and all account information, seed phrases, and private keys for its digital and fiat assets, details about the securities and unregistered shares, and any accounts held on centralized or decentralized exchanges, along with any other tangible or intangible assets.

The order also labels hedge fund attorney Hannah Terhune, directors Mark Dubois and Cheuk Yao Pau, and Kelly Chen — wife of co-founder Kyle Davies — as “discovery targets”, alongside trading desk company Tai Ping Shan Limited, venture capital firm DeFiance Capital, 3AC-backed NFT fund Starry Night Capital and all of their associates.

Any individuals served with the subpoena are required to comply within 14 days unless otherwise agreed with the parties.

At the time of writing there has been no solid information on the whereabouts of either Zhu or Davies, it’s rumored Zhu is residing in Dubai while Davies is residing on the Indonesian island of Bali. Both have been active on social media commenting on developments relating to the collapse of FTX and Alameda research.

Claim: Terraform dumped $450M UST before crash

Meanwhile, self-proclaimed Terra whistleblower FatMan has made new claims on Twitter that it was the actions of Terraform Labs itself that led to the de-pegging of TerraUSD (UST), now TerraClassicUSD (USTC), in May — as opposed to a concerted attack.

That being said, not everyone is convinced about the theory or that the information is new.

In a Dec. 6 Twitter thread FatMan cited “bombshell data” from anonymous researcher Cycle_22 that purportedly discovered two trading wallets which are verified to be owned by Terraform Labs had “dumped” $450 million worth of UST on the open market in the three weeks leading up to the de-peg, explaining:

“TFL has been perpetrating the narrative that UST was ‘attacked.’ This is a false flag.”

“In reality, TFL themselves weakened the Curve pool by irresponsibly dumping a massive amount of UST in a short timeframe. This reduced liquidity and severely weakened the peg," FatMan said.

December 6, 2022: New on-chain data indicates TFL sold $450m in UST in the weeks leading up to the UST collapse, greatly exacerbating if not directly causing its demise. https://t.co/ijPMo0XqVt

— FatMan (@FatManTerra) December 6, 2022

However, some Twitter users responding to the thread have stated it was “public knowledge” that TFL was withdrawing UST from a Curve liquidity pool (3Pool) in preparation to seed its new stablecoin liquidity pool (4Pool) it was working with Frax Finance at the time.

Others, such as Twitter user RyanLion said it had been “clearly communicated” that the UST swaps into the curve pool were part of moves of swapping UST into other stables to purchase Bitcoin (BTC) for the Luna Foundation Guard reserves.

A June blog from blockchain firm Chainalysis said that while Terraform Labs withdrew millions of UST from 3Pool at the time (approximately 150 million), it was the actions of two traders in the hour following — swapping a total of 185 million UST for USDC and TFL’s response to that, which led to the depeg and resulting panic sell-off.