Singapore High Court Upholds DeFiance Capital’s Claim Against Three Arrows Capital

Singapore’s High Court upheld DeFiance Capital founder Arthur Cheong’s trust relationship over assets disputed in bankruptcy proceedings, establishing investors’ rights in cryptocurrency assets and trust law.

The High Court of Singapore recently ruled against Three Arrows Capital (3AC), a bankrupt cryptocurrency hedge fund, in its attempt to dismiss a lawsuit filed by Arthur Cheong, the founder of Web3 investment firm DeFiance Capital. The court recognized a valid trust relationship between DeFiance Capital and 3AC, acknowledging that the assets in dispute were indeed held in trust for DeFiance Capital’s investors. This decision stems from a lawsuit filed by Cheong in April 2023, wherein he contended that DeFiance Capital investors were the rightful beneficiaries of assets held by 3AC and that these funds should not be utilized to settle creditor claims against 3AC​​​​.

The background to this legal battle traces back to an agreement between Cheong and 3AC founders Su Zhu and Kyle Davies to launch an independent fund on the 3AC Group platform, which Cheong would own and control. This fund had access to 3AC resources and maintained segregated accounts and wallets under Cheong’s name. Despite the collapse of 3AC in July 2022 and its subsequent bankruptcy, DeFiance Capital was allowed by the Singapore High Court to sue 3AC’s estate to recover assets still under 3AC’s control. The court found that the cryptocurrency in the Fireblocks wallets, which remained under 3AC’s control, was held in trust, countering 3AC’s claims that DeFiance Capital’s claim was without merit​​.

This ruling is significant for several reasons, not least of which is its affirmation of the trust relationship in the context of cryptocurrency assets and the jurisdiction of Singaporean courts in such disputes. It underscores the legal complexities surrounding the control and ownership of digital assets in the evolving crypto landscape. The decision also highlights the challenges faced by investors and fund managers in securing and asserting their rights over digital assets, especially in cases where the entities holding these assets go bankrupt.

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