News broke early this week that a British Virgin Islands court had ordered Singapore-based digital currency hedge fund Three Arrows Capital (3AC) into liquidation.
The move comes just days after Voyager Digital revealed that it had around $660 million in exposure to 3AC and was issuing a default notice against the firm.
At its peak last year, 3AC had an estimated $18 billion in assets under management. However, a recent report from FSInsight shows that all may not have been as it seemed.
FSInsight accuses Three Arrows Capital of running a Ponzi scheme
FSInsight, an independent research firm led by Tom Lee, publicly accused Three Arrows Capital of running a “Madoff-style Ponzi scheme” in a report last Friday.
In the note, FSInsight outlined how 3AC founders Kyle Davies and Su Zhu had “used their reputation to recklessly borrow from just about every institutional lender in the business,” in a trade similar to the one that sank Long Term Capital Management in 1998.
Going further, the report concluded that Zhu and Davies likely used borrowed funds to pay off the interest on loans while simultaneously “cooking the books” to show incredible returns.
While Davies acknowledged that 3AC had been “caught off guard” by the LUNA/UST crash, FSInsight believes it was a leveraged bet on the Grayscale Bitcoin Trust (GBTC) owned by the Digital Currency Group that started the firm’s unraveling.
The story is yet another example of how a fundamental misunderstanding…
