Liquidators of Three Arrows Capital (3AC) want a judge to fine a co-founder Kyle Davies US$10,000 per day, claiming their ability to unwind the failed cryptocurrency hedge fund has been impeded by his refusal to cooperate with their investigation into the firm’s collapse.

The substantial fine is warranted because Davies hasn’t responded to a subpoena served nearly five months ago, lawyers for the 3AC liquidators said in a filing in New York bankruptcy court last week. The decision to impose the fine is up to Judge Martin Glenn who said in a ruling earlier this year that Davies risked being held in contempt of court if he failed to comply with the subpoena and continued to sit out the proceedings.

Liquidators have taken unorthodox steps in an effort to get the 3AC co-founders to turn over information, including getting approval from Judge Glenn to issue the subpoena to Davies via Twitter, where he frequently posts. Given the circumstances, a US$10,000 per day fine “is fair and likely meaningful in persuading Davies to respond”, the liquidators said.

The liquidators have said they don’t currently know where Davies or fellow co-founder Su Zhu are currently residing. However, they referenced a Jun 9 New York Times article that reported Davies flew to Bali after 3AC collapsed. In a sworn statement, 3AC liquidator Russell Crumpler cited Davies’ comments in the article as evidence that the founder has shown no remorse for the collapse of the firm, which owes creditors roughly US$3 billion.

“In my view and experience as a liquidator, Mr Davies’ behaviour and recent public statements confirm his disregard for court orders and his obligations to the debtor’s estate,” Crumpler said.

Lawyers for Davies and Zhu didn’t return a message sent last Thursday (Jun 15) seeking comment. In e-mail correspondence submitted to the court by the liquidators, counsel to Davies and Zhu have said court orders the liquidators have obtained are “baseless” and that US courts have no jurisdiction over their clients because they have no presence in the country.

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Judge Glenn has previously said the liquidators presented strong evidence that Davies is subject to the court’s jurisdiction even though he no longer resides in the country. Liquidators have said Davies was born in the US and that 3AC was first formed in Delaware and operated in California before it was incorporated in the British Virgin Islands, according to a March ruling. 

The co-founders also obtained credit from US financial institutions and tapped investors in New York and California. The judge declined last year to approve a subpoena for Zhu, who liquidators have said was born in China.

An Aug 8 court hearing has been scheduled to consider the fine. BLOOMBERG