3AC liquidators file lawsuit against Terraform Labs seeking $1.3 billion in damages 3AC liquidators file lawsuit against Terraform Labs seeking $1.3 billion in damages
3AC liquidators have been aggressively pursuing avenues to recover funds for creditors since the firm's collapse.
2 min read
Updated: Aug. 13, 2024 at 11:26 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
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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Author 
Assad Jafri
AJ, a passionate journalist since Yemen's 2011 Arab Spring, has honed his skills worldwide for over a decade. Specializing in financial journalism, he now focuses on crypto reporting.
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Terra Classic
$0.00011
Terra is a blockchain protocol that uses fiat-pegged stablecoins to power price-stable global payments systems.
TerraClassicUSD
$0.02113
TerraUSD (UST) is a decentralized and algorithmic stablecoin on the Terra blockchain.
Three Arrows Capital
Three Arrows Capital (3AC), a Singapore-based crypto hedge fund, collapsed due to poor risk management, recklessness in dealing with business partners and a significant portion of greed.
Terraform Labs
Terraform Labs is a startup that created Terra, a blockchain protocol and payment platform used for algorithmic stablecoins.
Do Kwon began his professional journey as an engineer, contributing to tech giants Apple and Microsoft.
Kyle Davies is an entrepreneur and businessman based in Singapore who co-founded Three Arrows Capital (3AC), a bankrupt cryptocurrency hedge fund.