Collapsed hedge fund Three Arrows Capital wants more than $1.5 billion from the FTX estate, but the exchange says the claim is built on fantasy and failed trades.
In a 94-page objection filed in Delaware bankruptcy court on Friday, the FTX Recovery Trust asked the judge to disallow Three Arrows’ claim in full.
It argues the claim is “unreasonable and unsupportable” and based on a misreading of the hedge fund’s actual account balance at the time of its collapse in mid-2022.
According to the filing, Three Arrows’ claim hinges on the idea that it held nearly $1.6 billion in digital assets on FTX when the crypto exchange collapsed in late 2022.
But FTX says the account was actually worth just $284 million in June 2022, a figure that already included more than $733 million in margin debt.
The estate accuses Three Arrows of ignoring those liabilities and trying to pass off a heavily leveraged position as unencumbered value.
Much of that $284 million disappeared in just two days as crypto markets plunged. According to the filing, $222 million was lost to falling token prices, while $60 million was withdrawn by Three Arrows itself.
FTX says the only step it took was liquidating $82 million after Three Arrows blew through its limits and stopped responding to margin calls.
The move, it argues, was fully allowed under the contract and actually “avoided a negative account balance.”
“FTX creditors should not be a backstop for 3AC’s failed trades,” the filing states. It adds that while the hedge fund “took risky positions and fumbled,” FTX acted appropriately when those trades collapsed.
If the court sides with FTX, the claim would be disallowed entirely, or at best, reduced to a standard unsecured creditor claim.
This means 3AC would likely receive only a small fraction of the amount sought.
The next hearing is set for August 12.
