Key Takeaways
- • The Monetary Authority of Singapore (MAS) is intensifying scrutiny of Three Arrows Capital (3AC), reprimanding the crypto hedge fund for providing false information and exceeding assets-under-management limits between July 2020 and September 2020, and between November 2020 and August 2021.
- • MAS is assessing whether further rule breaches occurred, citing "recent developments which call into question the solvency of the fund managed" by Three Arrows.
- • A British Virgin Islands court ordered liquidation of Three Arrows this week after creditors including Blockchain.com and Deribit filed a petition; Teneo was appointed to handle the process.
- • The fund's collapse is linked to the contagion that began with the May 2022 TerraUSD stablecoin collapse, which spilled over to lenders Celsius Network and Babel Finance and crypto broker Voyager Digital.
- • Analysts say the regulatory action could be accelerated by the fund's insolvency, and warn of possible further penalties if the firm was dishonest in additional communications.
Summary
The Monetary Authority of Singapore is intensifying its scrutiny of Three Arrows Capital as the crypto hedge fund faces liquidation after failing to repay creditors, according to Fortune. The regulator said Thursday that it is assessing whether there were further breaches of its rules in light of "recent developments which call into question the solvency of the fund managed" by Three Arrows. MAS previously reprimanded the firm for providing false information and exceeding the limit on assets under management during two periods: July 2020 to September 2020, and November 2020 to August 2021.
Among the breaches, Three Arrows failed to inform the regulator within the required timeline of changes in the directorships and shareholdings of its directors, Su Zhu and Kyle Davies. MAS has been investigating these violations since June 2021. Three Arrows was incorporated in Singapore in January 2013, and the registered fund management company has lodged to cease operations in the city-state, pending regulatory submission, according to a notice on the MAS website.
The fund, which had bet heavily on assets ranging from Bitcoin to the Luna tokens, became one of the latest casualties of a roughly $2 trillion digital-asset market wipeout that left it with substantial unpaid debt on its borrowings. A British Virgin Islands court ordered liquidation this week following a petition filed by creditors including Blockchain.com and Deribit, and appointed two partners at Teneo to handle the process. Concerns about the fund surfaced after an ominous tweet last month by Su Zhu saying the firm was "working this out" without providing details. Zhu and Solitaire LLP, a law firm representing the firm, did not respond to requests for comment.
The episode sits uneasily with Singapore's ambition to become a key hub for cryptocurrency businesses. The central bank has tightened crypto regulations, been conservative in granting licenses to crypto service providers, and repeatedly warned retail investors against the volatile asset class. MAS typically issues a reprimand before a firm's compliance or control failures lead to more serious lapses that may warrant harsher enforcement, according to its enforcement guidelines. MAS chief fintech officer Sopnendu Mohanty told the Financial Times the regulator would be "brutal and unrelentingly hard" on bad behavior in crypto markets.
Chris Holland, a partner at Holland & Marie, said the ongoing review means firm conclusions about the case cannot yet be drawn, and that penalties could be severe if Three Arrows was dishonest in other communications: "There may be more fallout to come." Reed Smith partner Hagen Rooke said the timing of the enforcement notice may have been prompted by the fund's announced insolvency.
Among the breaches, Three Arrows failed to inform the regulator within the required timeline of changes in the directorships and shareholdings of its directors, Su Zhu and Kyle Davies. MAS has been investigating these violations since June 2021. Three Arrows was incorporated in Singapore in January 2013, and the registered fund management company has lodged to cease operations in the city-state, pending regulatory submission, according to a notice on the MAS website.
The fund, which had bet heavily on assets ranging from Bitcoin to the Luna tokens, became one of the latest casualties of a roughly $2 trillion digital-asset market wipeout that left it with substantial unpaid debt on its borrowings. A British Virgin Islands court ordered liquidation this week following a petition filed by creditors including Blockchain.com and Deribit, and appointed two partners at Teneo to handle the process. Concerns about the fund surfaced after an ominous tweet last month by Su Zhu saying the firm was "working this out" without providing details. Zhu and Solitaire LLP, a law firm representing the firm, did not respond to requests for comment.
The episode sits uneasily with Singapore's ambition to become a key hub for cryptocurrency businesses. The central bank has tightened crypto regulations, been conservative in granting licenses to crypto service providers, and repeatedly warned retail investors against the volatile asset class. MAS typically issues a reprimand before a firm's compliance or control failures lead to more serious lapses that may warrant harsher enforcement, according to its enforcement guidelines. MAS chief fintech officer Sopnendu Mohanty told the Financial Times the regulator would be "brutal and unrelentingly hard" on bad behavior in crypto markets.
Chris Holland, a partner at Holland & Marie, said the ongoing review means firm conclusions about the case cannot yet be drawn, and that penalties could be severe if Three Arrows was dishonest in other communications: "There may be more fallout to come." Reed Smith partner Hagen Rooke said the timing of the enforcement notice may have been prompted by the fund's announced insolvency.
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