High Court Approves DeFiance Capital’s Suit Against 3AC

In August, the High Court of Singapore made a decision to reject an application made by bankrupt crypto hedge fund Three Arrows Capital (3AC) to dismiss a lawsuit filed against it by Arthur Cheong, the founder of investment firm DeFiance Capital. Cheong alleged in a suit filed in April 2023 that DeFiance Capital’s investors were the true owners of assets held in trust by 3AC, and that the funds should not be used to satisfy creditor claims against 3AC’s estate.

As part of a resolution, Cheong agreed with Su Zhu and Kyle Davies to launch an independent fund on the 3AC Group platform, which would be owned and controlled by Cheong himself. This fund, known as DeFiance Capital, had access to various resources provided by 3AC, including its middle- and back-office infrastructure, fund administrators, and auditors. It had segregated accounts and wallets in Cheong’s name and paid a fee of 25% of its fees to Zhu and Davies.

By May 2022, DeFiance Capital’s accounts held 22.3 million Tether and $93.8 million in other cryptocurrencies and fiat currencies. To facilitate the operations of DeFiance Capital, 3AC created subaccounts for the firm on FTX and Binance, as well as a separate workspace on the platform of their custody provider, Fireblocks. When 3AC relocated its headquarters to Dubai in 2022, DeFiance Capital was transferred out of 3AC and incorporated as two separate entities in Singapore. It’s worth noting that some assets were not transferred to DeFiance Capital as agreed, although the specific value of these assets was not disclosed in the court decision.

In July 2022, 3AC declared bankruptcy, leading to DeFiance Capital being allowed to file a lawsuit against 3AC’s estate in order to reclaim the funds still under 3AC’s control. On the same day, 3AC filed counterclaims. The court made a determination that the crypto assets held in the Fireblocks wallets, despite 3AC’s claims, were indeed held in trust. The court also noted that it is not uncommon for a trust to be deemed to exist even if it contradicts the contents of legal documents.

The court established that Singapore was the appropriate jurisdiction for the lawsuit due to the fact that the person controlling the keys to the wallets was located there. The court noted that Singapore had sufficient legal grounds to have jurisdiction over the matter.