The High Court of Singapore has rejected an application by bankrupt crypto hedge fund Three Arrows Capital (3AC) to dismiss the suit brought against it by Cheong Jun Yoong, otherwise known as Arthur Cheong, in August. Cheong is the founder of Web3 investment firm DeFiance Capital. 

Cheong claimed in a suit filed in April 2023 that DeFiance Capital investors were the ultimate beneficial owners of assets held in trust by 3AC and the 3AC estate should not use those funds to satisfy creditor claims against it.

The Singapore High Court's decision on Cheong's claim. Source: Singapore High Court

The claimant reached an agreement with Su Zhu and Kyle Davies to launch an “independent and standalone fund on the 3AC Group platform, which would be owned and controlled by the claimant.” The fund had access to 3AC resources such as its middle- and back-office infrastructure, fund administrators and auditors.

The fund, which was eventually named DeFiance Capital, had segregated accounts and wallets in Cheong’s name. It paid a fee to Zhu and Davies of 25% of the fees it brought in. In May 2022, DeFiance Capital accounts contained 22.3 million Tether (USDT) and $93.8 million in other cryptos and fiat. 3AC created subaccounts for DeFiance Capital in its accounts on FTX and Binance and a separate workspace on the platform of 3AC’s custody provider, Fireblocks.

DeFiance Capital was transferred out of 3AC and incorporated as two entities in Singapore when 3AC moved its headquarters to Dubai in 2022. Certain assets were not transferred to DeFiance Capital in accordance with a previous agreement. The value of those assets was not specified in the court decision.

3AC declared bankruptcy in July 2022, and the Singapore High Court allowed DeFiance Capital to sue the estate of 3AC to recover its still controlled by 3AC in November. 3AC filed counterclaims on the same day.

The court established that the crypto in the Fireblocks wallets that remained under 3AC control was in trust, despite 3AC claims that the claim was meritless:

“It is not uncommon that a trust is found to exist notwithstanding the fact that it contradicts what relevant legal documents say.”

Furthermore, Singapore was the appropriate forum for the suit because the person controlling the keys to the wallets was located there and the country “had sufficient nexus” under Singapore law.