Mister Davies? Mister Davies? Anyone Home…?

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Kyle Davies continues to ignore the subpoena served publicly on Twitter while suggesting his absolute readiness to comply with the procedures. This is at a time when the founder is reportedly raising 25 million dollars for a new start-up while hiding in the shadows as he faces allegations of fraudulency.

Kyle Davies Ignores Subpoenas From Liquidators

Kyle Davies, co-founder of the now-bankrupt hedge fund Three Arrows Capital (3AC) has recently been accused of making “only piecemeal disclosures: and refusing to cooperate with investigations into the company.

Davies was issued a subpoena via Twitter in January, but he has ignored any and all requests that demand his firm’s financial record. A representative from the firm has claimed that Davies and another 3AC founder Su Zhu have “refused to meaningfully engage” with the liquidations, and these individuals haven’t made any attempts to reach out or comply with the subpoena.

The exact location of Davies isn’t known as of yet, however, some reports suggest that he flew to Dubai after the collapse of 3AC along with his co-founder. This comes after a claim from Davies where he said that he will be “cooperating all the way” in a CNBC interview.

According to a filing submitted to the New York bankruptcy court, Davis is obstructing requests from the 3AC liquations team, while he’s being accused of soliciting investors “shamelessly” for a new crypto exchange, ignoring his responsibilities and duties with respect to 3AC.

Liquidators have so far only been frustrated by the lack of response from 3AC’s founders, as well as their futile attempts to reach the founders since the start of the bankruptcy proceedings. The founders, however, have taken quite the opposite stance saying that they’ve been complying with the authorities since day one, but complaints from the liquidators emerged shortly after 3AC filed for bankruptcy.

Davies is believed to be in Bali since Indonesia is one of the seven countries that is not known to extradite a person to the United States. Zhu’s location, on the other hand, has been suggested to be either Singapore or the United Arab Emirates, but the exact locations aren’t known.

This hasn’t however stopped Davies from being active on social media. There are reports that he is raising $25 million to start a new cryptocurrency exchange, GTX, an apparent better substitute for the fallen exchange FTX, since G comes after F. This exchange is based on the idea that investors will be able to purchase bankruptcy claims from failed crypto exchanges and use them as collateral.

As for the downfall of the firm, here is a detailed overview of how 3AC went down.

The Collapse Of Three Arrows Capital

The collapse of Three Arrows Capital is one of the most noteworthy events in the history of cryptocurrencies. This event led to a shockwave throughout the market that is known to have resulted in losses of billions of dollars.

As of 2022 March, 3AC was managing $10 billion in assets but soon filed for bankruptcy due to a risky trading strategy that wiped its assets off to a point where the company was unable to pay lenders. And that’s just the gist of it.

3AC had a long list of counterparts or other companies that depended on it. They had their money locked up in 3AC and its ability to at least stay afloat, if not be highly profitable. As the turn of events may have it, firms that relied on 3AC suffered the consequence after having their fair share of losses from the then-crashing crypto market.

Blockchain.com, for instance, faced $270 million in losses, as it had lended the amount to 3AC. While Voyager Digital filed for bankruptcy after 3AC couldn’t pay back the $670 million it had borrowed from the company. Many other US-based exchanges later joined the list, including BitMEX and FTX.

Commenting on the situation, Nic Carter, a partner at Castle Island Ventures said that “Credit is being destroyed and withdrawn, underwriting standards are being tightened, solvency is being tested, so everyone is withdrawing liquidity from crypto lenders,”

Three Arrows Capital essentially relied on borrowing money from across companies in the industry and putting that money into other, unreliable and nascent crypto projects. This irresponsible behaviour was overlooked by investors since the firm had been around for a decade, and the founders had a fair share of credibility in the industry. Funnily enough, the firm was even referred to as the “adult in the room” since investors thought 3AC knew what it was doing.

Three Arrows Capital’s loss was linked to TerraUSD, a stablecoin linked to the US dollar. The stability of this coin relied on a complex code, as it was linked to its sister token LUNA, and any price fluctuation in this currency was reflected in the stablecoin. Stablecoins are meant to hold value, or maintain a value in a given range, while other cryptocurrencies in the market are busy being super volatile, especially during bear and bull markets.

Anchor, a lending platform, provided an annual yield of 20% to investors for their USDT holdings which were termed to be unsustainable by many analysts. The high-risk surfacing TerraUSD, clubbed with the high percentages yield, tougher led to a collapse. That then triggered a marketwide crash, wiping out over $60 billion of investors’ wealth in a matter of weeks.

3AC came out to the press saying that it had invested $200 million in Luna, while industry reports suggest a much bigger number, many claiming that the firm’s exposure to the LUNA token was more than $500 million. In the end, what mattered was that the firm had lost all its money invested in the project.

As the crypto market was quite volatile at the time, it was a great time for investors to make money on margin calls. For this, lenders to 3AC asked for their money back, so they could switch investments. However, the firm came out and said that it is not in a position to pay anyone back, since all of its funds have vanished. And that is how we get to a failed firm, and its alleged fraudulent founders claiming no responsibility, continuing to stay safe while the industry faces repercussions of their actions.

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