FTX’s legal team has filed a motion asking a Delaware bankruptcy court to reject a $1.53 billion claim submitted by failed hedge fund Three Arrows Capital (3AC), calling the filing “factually flawed and legally untenable.”
The contested claim stems from a November 2024 ruling that allowed 3AC to revise its original $120 million claim upward by more than 1,100%. The hedge fund alleged that FTX improperly liquidated a large portion of its holdings in the weeks leading up to its collapse. In response, FTX lawyers argue that the massive revision relies on “inaccurate figures and faulty assumptions,” stating that 3AC’s trading failures were self-inflicted, not the result of any wrongdoing by the exchange.
Court filings reveal that 3AC was extended a $120 million credit line on FTX, which it used for aggressive margin and spot trades. FTX acknowledges liquidating $82 million worth of 3AC’s assets but defends the action as a margin call, contractually required under the fund’s own trading agreement.
FTX Accuses 3AC of Ignoring Margin Call and Withdrawing Funds
According to the objection, 3AC failed to maintain the required $240 million in collateral and ignored multiple warnings. During a six-hour silence following the Terra ecosystem collapse, 3AC allegedly withdrew $18 million in ETH while disregarding urgent outreach from FTX staff.
In response, FTX moved to liquidate 3AC’s account, selling off assets to recover $82 million. Lawyers argue that this action didn’t diminish the fund’s value but rather prevented deeper losses. According to the filing, if the liquidation hadn’t occurred, 3AC’s account would have ended up $18 million in the red by the time FTX filed for bankruptcy.
“No action by FTX resulted in any loss of value,” the attorneys wrote, calling 3AC’s current claim against the estate “a fiction.”
Expert Analysis and BVI Legal Opinion Bolster FTX’s Defense
To support its motion, FTX included expert testimony from Steven P. Coverick, a managing director at Alvarez & Marsal. Coverick stated the liquidation was “reasonable and necessary,” and that it ultimately prevented the account from going into deficit.
FTX also submitted a legal opinion from British Virgin Islands King’s Counsel Stephen Atherton, who dismissed 3AC’s legal rationale under BVI law as “fundamentally flawed.” According to Atherton, 3AC’s arguments fail to hold up under relevant legal standards and should be thrown out entirely.
FTX’s broader argument is that 3AC is attempting to recover from its own bad trades by raiding the estate:
“FTX creditors should not and cannot serve as a backstop for 3AC’s failed trading strategy,” the filing states.
Three Arrows Capital has until July 11 to formally respond to the objection. A non-evidentiary hearing on the matter has been scheduled for August 12 in Delaware bankruptcy court. As of publication, 3AC’s legal team has not made any public statements regarding the claim or the objection.
Quick Facts
- FTX has filed a motion to dismiss 3AC’s $1.53B claim
- The exchange says the hedge fund ignored a margin call and withdrew $18M
- Expert testimony defends FTX’s $82M liquidation as contractually valid
- A court hearing is scheduled for August 12, with a July 11 deadline for 3AC’s response
