Court Approves 3AC’s $1.53B Claim Against FTX, Reshaping Crypto Bankruptcy Cases

Judge Overrules FTX’s Objections in Landmark Legal Decision

A U.S. Bankruptcy Court in Delaware has granted Three Arrows Capital (3AC) the right to expand its claim against FTX to $1.53 billion, a dramatic increase from the initial $120 million. Judge John Dorsey dismissed FTX’s objections, citing the company’s failure to provide key financial records in a timely manner. The decision is expected to set a major precedent for creditor claims in digital asset bankruptcies, complicating FTX’s reorganization efforts.

FTX debtors pushed back against the ruling, arguing that the increased claim could disrupt creditor repayments and undermine their ability to distribute assets. However, they failed to present sufficient evidence to overturn the decision. Legal analysts suggest the ruling could influence future insolvency cases, making it harder for bankrupt crypto firms to limit creditor claims based on procedural technicalities.

FTX’s Secret $1.53 Billion Liquidation of 3AC Assets Raises New Questions

Court filings revealed that FTX secretly liquidated $1.53 billion worth of 3AC’s assets just weeks before the hedge fund collapsed in mid-2022. The revelation challenges the previously accepted narrative that 3AC’s downfall stemmed entirely from reckless trades and unfavorable market conditions. Instead, 3AC’s legal team argued that FTX liquidated its holdings to offset its own financial shortfalls before declaring bankruptcy in November 2022.

3AC discovered the full scope of these transactions only in August 2024 after manually analyzing millions of data points. The hedge fund’s lawyers contended that FTX’s obstruction not only delayed legal proceedings but also deepened financial losses for 3AC creditors. Judge Dorsey ruled that since FTX had prior knowledge of potential claim increases, 3AC’s late amendment was justified.

FTX Warns of Major Payout Reductions as Legal Fight Escalates

FTX’s legal team attempted to block the expanded claim, arguing that it constituted a “brand-new claim” that should be disqualified for missing the original filing deadline. They also warned that creditor recoveries could be reduced by as much as 20%, with FTX Creditors CFO Louis D’Origny highlighting the potential financial strain. CEO John Ray III further argued that the ruling could expand FTX’s financial liabilities to unsustainable levels.

Despite these concerns, the court maintained that FTX’s own bankruptcy filings and failure to disclose critical records had hindered 3AC’s ability to file the full claim earlier. The decision could force FTX to reassess its payout strategy, further complicating its bankruptcy proceedings.

Market and Regulatory Fallout

The court’s approval of 3AC’s $1.53 billion claim has reshaped expectations for creditor distributions in the crypto space. Liquidators overseeing 3AC’s estate, Russell Crumpler and Christopher Farmer, noted that the ruling could drastically alter bankruptcy settlement structures. Teneo, the firm handling 3AC’s liquidation, estimates that creditors are still owed around $3.3 billion from multiple entities.

Despite the ongoing legal drama, FTX’s native token (FTT) surged 7.2% in the past 24 hours, reflecting speculative trading activity. Meanwhile, Binance co-founder Changpeng Zhao (CZ) called for further scrutiny into FTX’s role in the Terra-LUNA collapse. The fall of Three Arrows Capital was a key trigger for the failures of FTX, Celsius, and Terraform Labs, and the prolonged legal battle is likely to keep uncertainty in the crypto industry for years.

With forensic audits into FTX’s financial activities expected to continue, regulators may tighten disclosure rules for crypto firms to prevent undisclosed asset liquidations. As 3AC also pursues a separate $1.3 billion claim against Terraform Labs, the fallout from crypto’s largest bankruptcies remains far from over.

This article has been refined and enhanced by ChatGPT.