Three Arrows Capital (3AC), the defunct crypto hedge fund, has its liquidators pursuing a $1.3 billion lawsuit against TerraForm Labs, the bankrupt digital assets company co-founded by Do Kwon.

This legal action is part of ongoing efforts to recover funds for 3AC’s creditors following the fund’s collapse.

3AC Liquidators Pursue TerraForm Labs

The Three Arrows Capital (3AC) liquidators are alleging that TerraForm Labs manipulated the market for Luna and TerraUSD, which led to artificially inflated prices for these tokens.

This manipulation, they claim, induced 3AC to invest heavily in these assets before they were wiped out. The collapse of these tokens not only erased 3AC’s investment but also caused substantial losses in the funds other digital holdings.

In January 2022, 3AC acquired $190 million worth of Luna as part of a broader $1 billion deal, which included investments from other firms. However, a massive sell-off of TerraUSD just a few months later triggered a sharp decline in both TerraUSD and Luna, severely depleting the value of 3AC’s investment.

By the end of April 2022, 3AC’s Luna holdings were valued at approximately $462 million, but by May 14, that value had plummeted to just over $2,700. Simultaneously, the net value of 3AC’s other digital assets dropped by about $858 million.

TerraForm, which filed for Chapter 11 bankruptcy in January, is currently in the process of liquidation after being found liable for fraud earlier this year. However, the amount of money that can be recovered still remains uncertain.

3AC’s Legal Struggles Intensify

Once a prominent figure in the crypto hedge fund industry, Three Arrows Capital (3AC) saw its downfall closely following the collapse of LUNA. In the aftermath, a British Virgin Islands court appointed liquidators from the consulting firm Teneo to recover assets in an effort to repay the hedge funds creditors.

This lawsuit against TerraForm Labs is just one of several actions the liquidators have initiated, as they are also pursuing claims against 3ACs founders, Su Zhu and Kyle Davies.

Meanwhile, sources familiar with the situation revealed that Zhu has been attempting to offload at least one of his prestigious good-class bungalows over the past few weeks amid the companys ongoing liquidation process.

Notably, following the crash of the LUNA project, TerraForm’s co-founder Do Kwon was arrested in Montenegro last year. He now faces charges in both the United States and his home country, South Korea.