Three Arrows Capital (3AC) liquidators have filed a lawsuit against Terraform Labs, seeking $1.3 billion in damages for TerraLUNA’s collapse.
The legal action, filed on Aug. 12, claims that Terraform Labs manipulated the prices of its tokens, LUNA and TerraUSD, leading to catastrophic losses for 3AC.
Three Arrows Capital, once a prominent player in the crypto market, experienced a stunning downfall in 2022, resulting in $3.3 billion in losses.
Since the collapse, the firm’s liquidators have been aggressively pursuing avenues to recover funds for creditors. Terraform Labs, founded by Do Kwon, is the latest target in their legal campaign.
Allegations of manipulation
The lawsuit alleges that Terraform Labs artificially inflated the prices of LUNA and TerraUSD, misleading 3AC into making significant investments in these assets. The subsequent crash of these tokens led to substantial losses for the hedge fund, exacerbating its financial woes.
The legal action follows previous inquiries by the liquidators into the whereabouts of billions in assets tied to 3AC’s founders, Su Zhu and Kyle Davies, as they continue efforts to compensate creditors affected by the hedge fund’s collapse.
Terraform Labs, already embroiled in legal challenges and financial strain, now faces the daunting task of addressing this new lawsuit. The company has been under intense scrutiny since the LUNA crash and recently filed for Chapter 11 bankruptcy protection in the US.
According to court documents, Terraform Labs’ assets are estimated to be between $100 million and $500 million, far short of the $1.3 billion sought by 3AC.
Additional legal challenges
Adding to its woes, Terraform Labs is also liable for approximately $4.5 billion in penalties to the US Securities and Exchange Commission (SEC) following a settlement related to the LUNA crash.
The June SEC ruling mandates that a significant portion of these penalties be directed toward compensating Terraform Labs’ creditors.
The substantial financial obligations and ongoing legal battles cast doubt on whether Terraform Labs can meet the demands of the 3AC lawsuit. With its assets already stretched thin and its future uncertain, the company’s ability to satisfy the claims against it remains in serious question.
As the case progresses, the outcome could have significant implications for both the cryptocurrency industry and the ongoing efforts to hold those responsible for the TerraLuna collapse accountable. The lawsuit represents another chapter in the protracted legal struggles stemming from one of the most controversial events in recent crypto history.
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