Photo credit: Stevo Vasiljević/Reuters

Liquidators for the collapsed cryptocurrency hedge fund Three Arrows Capital (3AC) are seeking at least $1.3 billion in damages from Terraform Labs, the bankrupt digital assets company co-founded by Do Kwon.

The claim centers on losses Three Arrows suffered following the 2022 crash of Terraform’s Luna and TerraUSD tokens.

According to court documents cited by a June 12 Bloomberg report, the liquidators allege that Terraform manipulated the market, artificially inflating the price of Luna and TerraUSD, which induced 3AC to invest heavily in these tokens. The subsequent crash wiped out its investment and triggered substantial losses in its other holdings, ultimately leading to the hedge fund’s collapse.

Three Arrows filed for bankruptcy in July, two months after the Luna and TerraUSD crash in 2022. Liquidators appointed by a British Virgin Islands court have pursued various avenues to recover funds for 3AC’s creditors. This includes seeking a similar amount from the hedge fund’s founders, Su Zhu and Kyle Davies, as well as other firms.

The lawsuit against Terraform comes on the heels of a US jury finding Terraform and Kwon liable for fraud in a government lawsuit related to the Luna collapse.

The amount that Three Arrows might recover from Terraform remains uncertain. Terraform itself filed for Chapter 11 bankruptcy in January and is in the process of liquidation.

Meanwhile, Do is facing charges in both the US and South Korea and is currently awaiting extradition from Montenegro.

According to an August 8 report from Montenegrin news outlet Vijesti, the country’s Supreme Court granted prosecutors’ request to postpone the extradition until it could rule on a matter concerning the protection of legality. This motion was filed after an appellate court upheld a previous ruling allowing Kwon’s extradition.