MAS reprimands crypto hedge fund Three Arrows Capital for false information, exceeding AUM threshold

THE Monetary Authority of Singapore (MAS) has reprimanded Three Arrows Capital (3AC) for providing false information and exceeding the assets under management (AUM) threshold allowed for a registered fund management company.

3AC, one of the most prominent crypto investors in the world, was reportedly served a liquidation order by a court in the British Virgin Islands (BVI) on Monday after it failed to make payments on its loans.

On Thursday (Jun 30), MAS said 3AC provided information that was false or misleading and failed to notify the regulator of changes to directorships and shareholdings.

3AC had represented to MAS that it had novated the management of its fund to an unrelated offshore entity in BVI with effect from Sep 1, 2021.

MAS called the representation misleading, as 3AC and the offshore entity shared a common shareholder, Zhu Su, who is also a director of 3AC.

3AC also failed to inform MAS, within the required timeline, of changes in the directorships and shareholdings of its directors Zhu Su and Kyle Davies. Zhu and Davies co-founded the firm.

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Moreover, regulations forbid 3AC to have more than 30 qualified investors and manage assets of more than S$250 million. 3AC exceeded this threshold between July 2020 and September 2020, and between November 2020 and August 2021, said MAS.

The regulator did not specify how much the AUM was exceeded by. Before the crypto markets took their most recent hit, the firm claimed an AUM of about US$3 billion, Davies told The Wall Street Journal in June.

MAS has been investigating 3AC’s contraventions since June 2021.

“In light of recent developments which call into question the solvency of the fund managed by TAC (Three Arrows Capital), MAS is assessing if there were further breaches by TAC (Three Arrows Capital) of MAS’ regulations,” it said on Thursday.

The reprimand relates to contraventions by 3AC that occurred prior to Apr 29, when it notified MAS of its intent to cease fund management activity in Singapore with effect from May 6.

Cryptocurrency’s meltdown in recent weeks has claimed several victims and wiped out billions of dollars in value from the markets. 3AC’s rapid implosion, in particular, has sent ripple effects throughout the ecosystem.

New York-based crypto broker Genesis Trading faces “hundreds of millions” of dollars in potential losses due to exposure to 3AC and crypto lender Babel Finance, Coindesk reported on Thursday based on sources.

Another crypto broker, Voyager Digital, on Monday said it issued a notice of default to 3AC on a loan worth roughly US$675 million based on Bitcoin’s price on Jun 27.

The BVI court that ordered 3AC’s liquidation has reportedly appointed consulting and advisory firm Teneo to handle the liquidation.

Nichol Yeo, a partner at law firm Solitaire, said 3AC is reviewing its options and seeking legal advice.