FTX lawyers say 3AC’s $1.5 billion claim ‘defies logic’ and should be tossed

Three months after a Delaware bankruptcy court judge allowed defunct trading firm Three Arrows Capital (3AC) to increase its claim against the FTX bankruptcy estate from $120 million to $1.5 billion, FTX’s lawyers fired back Friday, arguing the trading firm’s claim should be “disallowed in its entirety” and that 3AC’s losses were self-inflicted. 

3AC had increased its claim from $120 million to $1.5 billion in November 2024, claiming to have discovered new evidence that FTX had liquidated $1.5 billion in the trading firm’s assets two weeks before 3AC’s own liquidation process. Yet FTX lawyers say that claim is based on “an unreasonable and unsupportable starting premise, inaccurate figures, and blindness to the actual events that occurred.”

In FTX’s view, 3AC’s own massive spot and margin trading, partly financed by a $120 million line of credit from FTX, caused the firm’s collapse independent of any actions by the FTX estate. Though FTX acknowledges an $82 million forced liquidation, the lawyers argue it was contractually mandated under the credit and margin agreements.

The objection recounts that 3AC breached its agreements with FTX in June 2022, in the wake of the Terra collapse the prior month, which sent prices diving across the crypto ecosystem,  when 3AC’s account balance fell below the required level of $240 million. When FTX approached 3AC about the breach, “3AC ignored FTX for more than six hours and, instead of depositing assets, it actually withdrew $18 million in ETH,” the lawyers state (emphasis in original), citing internal Slack and Telegram logs.

FTX then liquidated the account, selling assets for $82 million, an action the lawyers say preserved the value of 3AC’s assets rather than reducing them, as the accounts would’ve been $18 million underwater at FTX’s petition date had the liquidation not occurred. “No action by FTX resulted in any loss of value, and thus the assertion that 3AC has a claim against FTX is a fiction,” the filing states. 

Supporting declarations include a forensic reconstruction by Alvarez & Marsal managing director Steven P. Coverick, who writes that the liquidation “was reasonable and necessary,” preventing a negative balance within hours, and an opinion from British Virgin Islands KC Stephen Atherton that 3AC’s BVI law theories are legally unsound.

“[3AC seeks] to extract value from the Debtors’ estates at the expense of legitimate creditors in order to salvage their own failed liquidation proceedings,” the lawyers wrote. “But FTX creditors should not and cannot serve as a backstop for 3AC’s failed trading strategy.”

3AC’s response is due by July 11, and a non-evidentiary hearing is currently set for August 12. Lawyers for 3AC did not immediately respond to a request for comment from The Block. 

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