Liquidators of the collapsed cryptocurrency hedge fund Three Arrows Capital (3AC) are seeking damages from the bankrupt crypto firm Terraform Labs for the losses it suffered following the collapse of the Terra ecosystem in May 2022.

3AC liquidators filed a $1.3 billion claim in the Terraform Labs’ bankruptcy in Delaware federal court on Aug. 9, according to a legal news service Law360 report.

In a proof of claim form, 3AC liquidators alleged that Terraform Labs misled the Singaporean hedge fund about the stability of tokens in the Terra ecosystem, including Terra’s algorithmic stablecoin TerraUSD (UST) and the UST-tied token Terra Luna (LUNA).

Terraform Labs accused of providing misleading info about UST and Luna

The liquidators, represented by Russell Crumpler and Christopher Farmer of Teneo Holding, argued that Terraform Labs advertised the tokens “in a manner that artificially inflated the price for the assets.”

Those misrepresentations and omissions induced 3AC to invest heavily in Terra just a few months after UST depegged from the dollar, causing a massive crash in the Terra ecosystem that impacted a lot of cryptocurrency firms .

As such, 3AC liquidators seek damages caused by its direct purchases of UST and Luna and associated damages from the “complete loss of value of 3AC’s cryptocurrency investments caused by the collapse of LUNA and UST.”

Related: Montenegrin court delays Do Kwon’s extradition to South Korea .

The new claim by 3AC liquidators comes a few months after Terraform Labs co-founder Do Kwon was found liable for defrauding investors in a civil case with the United States Securities and Exchange Commission in April 2024.

Previously, Kwon was released from prison in Montenegro on extradition requests from the United States and South Korea.

3AC is going through bankruptcy

Founded in 2012 by Columbia University alumni Su Zhu and Kyle Davies, 3AC was one of the world’s biggest crypto hedge funds, handling up to $18 billion in assets under management at its peak.

Just a few months after Terra crashed, 3AC failed to meet margin calls from its lenders and filed for bankruptcy in late 2022. The company is currently proceeding with insolvency proceedings in the British Virgin Islands.

Last year, a court in the British Virgin Islands reportedly banned 3AC co-founders Zhu and Davies from transferring or selling assets worth up to $1.1 billion . 3AC’s liquidator, Teneo, estimated that 3AC creditors were owed roughly $3.3 billion following its collapse in 2022.

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