Singapore's High Court has rejected an application by failed cryptocurrency hedge fund Three Arrows Capital (3AC) to dismiss a claim brought against it by Cheong Joon Yong, also known as Arthur Cheong, in August. Cheong is the founder of investment firm Web3 DeFiance Capital.
In the suit, filed in April 2023, Cheong said that DeFiance Capital investors are the ultimate beneficial owners of the assets held in trust by 3AC, and the 3AC estate should not use those funds to satisfy creditors' claims against it.
The plaintiff reached an agreement with Su Zhu and Kyle Davis to create “an independent and autonomous fund on the 3AC Group platform that will be owned and controlled by the plaintiff.” The fund had access to 3AC resources such as middle office and back office infrastructure, fund administrators and auditors.
The fund, which was eventually named DeFiance Capital, had separate accounts and wallets in Cheong's name. He paid Zhu and Davis a commission equal to 25% of the commissions she contributed. In May 2022, DeFiance Capital had 22.3 million Tether (USDT) and $93.8 million in other cryptocurrencies and fiat currencies in its accounts. 3AC has created sub-accounts for DeFiance Capital in its FTX and Binance accounts, as well as a separate working space on the platform of the custodial provider 3AC Fireblocks.
1/ A decision relating to @DeFianceCapital's lawsuit against 3AC in Singapore has just been made public and contains some interesting points around the treatment of cryptoassets and trust relationships.
For context, I have been working with @Arthur_0x on this for the past year.
— wassielawyer （哇西律师） (@wassielawyer) January 31, 2024
DeFiance Capital was transferred from 3AC and incorporated as two companies in Singapore when 3AC moved its headquarters to Dubai in 2022. Some assets were not transferred to DeFiance Capital in accordance with the previous agreement. The value of this property is not indicated in the court decision.
3AC filed for bankruptcy in July 2022, and the Singapore High Court allowed DeFiance Capital to sue 3AC's assets to recover them in November, which are still controlled by 3AC. On the same day, 3AC filed counterclaims.
Related: Three Arrows Capital mulls bailout as Kyle Davis breaks silence: report
The court found that the cryptocurrency in the Fireblocks wallets, which remained under the control of 3AC, was held in trust, despite 3AC's claims that the claim was unfounded:
“It is not uncommon to find that a trust exists despite it being contrary to what the relevant legal documents say.”
Moreover, Singapore was the appropriate venue for the claim because the person in control of the keys to the wallets was located there and the country was “sufficiently connected” under Singapore law.