The High Court of Singapore has made a significant ruling in the ongoing legal battle involving the bankrupt crypto hedge fund Three Arrows Capital (3AC) and Web3 investment firm DeFiance Capital, founded by Cheong Jun Yoong (Arthur Cheong).
Arthur Cheong filed a lawsuit in April 2023, asserting that investors of DeFiance Capital were the ultimate beneficial owners of assets held in trust by 3AC. Cheong’s claim was based on an agreement with 3AC founders Su Zhu and Kyle Davies to launch an independent fund on the 3AC platform, which would be owned and controlled by Cheong. This fund, named DeFiance Capital, had separate accounts and wallets and contributed a portion of its fees to Zhu and Davies.
In May 2022, DeFiance Capital’s accounts held significant amounts in USDT, other cryptocurrencies, and fiat. 3AC facilitated DeFiance Capital’s operations by creating subaccounts on exchanges like FTX and Binance and providing a separate workspace on Fireblocks, a custody provider. However, when 3AC relocated its headquarters to Dubai in 2022, and DeFiance Capital was incorporated as two entities in Singapore, certain assets were not transferred as per the agreement.
Following 3AC’s bankruptcy declaration in July 2022, DeFiance Capital was permitted by the Singapore High Court in November to sue 3AC’s estate to reclaim assets still under 3AC’s control. On the same day, 3AC filed counterclaims.
The court determined that the cryptocurrencies in the Fireblocks wallets, still controlled by 3AC, were indeed held in trust. This decision contradicts 3AC’s stance that the claim was baseless. The court emphasized that the existence of a trust is possible even if it contradicts the terms of relevant legal documents.
The court also affirmed that Singapore was the appropriate jurisdiction for this lawsuit. This decision was based on the location of the person controlling the wallet keys and the legal nexus the case had with Singapore.
This ruling marks a crucial development in the legal tussle between DeFiance Capital and 3AC, highlighting the complexities of trust and ownership in the digital asset space, especially in cases involving cross-border entities and bankruptcy proceedings.
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