Three Arrows Capital Takes Legal Action Against Terraform Labs For $1.3 Billion

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It seems Terra’s troubles are never-ending! In a recent event, Three Arrows Capital (3AC) filed a $1.3 billion lawsuit against Terraform Labs in an attempt to recoup the huge losses it suffered following the collapse of Luna and TerraUSD according to a Bloomberg report. This legal battle is rooted in the dramatic events that unfolded in the crypto markets during 2022, particularly the collapse of Terra’s ecosystem.

Allegations of Market Manipulation

According to a document filed in the U.S. Bankruptcy Court for the District of Delaware on August 9, the liquidators accuse Terraform Labs of engaging in a scheme to manipulate the open market for its tokens—TerraUSD (UST) and LUNA. The legal filing alleges that Terraform Labs artificially inflated the prices of these assets, which in turn induced 3AC to purchase LUNA and UST. This alleged market manipulation is blamed for 3AC’s significant losses.

Background of the Collapse

In May 2022, Terra’s ecosystem collapsed, wiping out $40 billion in value. 3AC, heavily invested in Terra’s assets, filed for bankruptcy in July 2022 after experiencing severe financial losses. Court documents reveal that 3AC acquired $190 million worth of LUNA in January 2022, which soared to $462 million by April. However, a sell-off in TerraUSD caused the value to plummet to $2,700 by mid-May, with 3AC’s total digital holdings also falling significantly. 

Additional Context

In June 2023, the liquidators sought $1.3 billion from the founders of 3AC, Su Zhu and Kyle Davies, in connection with the fund’s bankruptcy. Terraform Labs itself filed for bankruptcy in Delaware in January 2024. Do Kwon, who has been involved in legal troubles since the collapse, was found guilty of civil fraud by a Manhattan jury in April 2024. He remains in Montenegro, facing potential extradition to South Korea or the U.S. for further legal proceedings.

This lawsuit is a continuation of the broader fallout from the Terra collapse, highlighting ongoing legal and financial repercussions for all parties involved.

Recent Developments

In a related case, the SEC announced last month that Terraform Labs and former CEO Do Kwon have agreed to a $4.5 billion settlement over civil fraud charges related to the collapse. Kwon, currently detained in Montenegro, is facing extradition while Terraform Labs remains in bankruptcy.

Will this crypto event impact the other crypto assets, stay alert and updated on the upcoming market trends with us. 

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