U.S. Regulators Probe Failure Of Three Arrows Capital

U.S. regulators are looking deeper into what remains of failed hedge fund Three Arrows Capital, trying to assess what led to the crypto crash this year, Bloomberg wrote.

Three Arrows was once one of the industry’s prominent firms, but it had to file for bankruptcy in July after a big selloff in assets partly because of the Terra blockchain collapse.

Now, regulators including the Commodity Futures Trading Commission and the Securities and Exchange Commission are looking into whether rules were broken and if Three Arrows Capital misled investors about how strong its balance sheet was.

Scrutiny from regulators can possibly lead to monetary fines and other penalties for firms and individuals.

There’s no information as to where the founders of the company are. Three Arrows Capital didn’t reply to a request for comment from PYMNTS.

The firm used to be able to lay claim to a few billion dollars under management. But it saw losses because of its position in the Terra blockchain situation, which crashed in May. The token’s collapse spread across the market in the days and weeks after, and Three Arrows Capital was unable to meet margin calls from lenders — leading to its insolvency.

Since then, liquidators overseeing the firm’s wind-down have seized control of tens of millions from the funds — though this is a fraction of the billions of dollars that creditors have said they’re owed.

Voyager Digital was one of the creditors, and that company has recently had to go up for auction due to its own troubles rippling from the problems mentioned.

Read more: Bankrupt Crypto Firm Voyager Sold to FTX for $1.4B

PYMNTS wrote in September that the company had to sell its assets to crypto exchange FTX for $1.4 billion.

The sale came after numerous rounds of bidding in a “highly competitive” auction process that lasted two weeks. There had been 22 parties overall showing an interest in buying the company, including crypto exchange Binance.

Voyager said FTX’s bid was based on the “fair market value” of all Voyager cryptocurrency determined sometime in the future, an estimated $1.3 billion at current prices, in addition to other considerations.