The legal battle surrounding the bankruptcy case of Three Arrows Capital (3AC), a defunct crypto hedge fund, has taken an unexpected twist. The focus has shifted to co-founder Kyle Davies, who managed to evade contempt charges and potential sanctions thanks to evidence of his Singaporean citizenship. This revelation has significantly impacted the court’s jurisdiction and the ongoing proceedings.
Evidence of Renounced U.S. Citizenship Alters Legal Landscape
The situation came to a head on August 11, when Judge Martin Glenn, presiding over the United States Bankruptcy Court for the Southern District of New York, issued a ruling that upended the existing narrative. Previously, motions concerning a subpoena directed at Davies through X, formerly known as Twitter, were evaluated without the crucial knowledge that he was no longer a U.S. citizen.
The judge referenced federal laws governing compliance beyond U.S. borders, noting that his prior approvals were based on the assumption of Davies’ U.S. citizenship at that time.
Moreover, on August 1, Davies’ legal team submitted evidence indicating that he had applied to renounce his U.S. citizenship in December 2020. Subsequently, he became a citizen of Singapore following his marriage to a national of that country. It’s important to highlight that Singapore does not permit dual nationality.
Reevaluation of Jurisdiction and Implications
Judge Glenn emphasized the altered perspective resulting from Davies’ revelation. He stated,
“Until Mr. Davies filed his Opposition, the Court was operating under the presumption that Mr. Davies was a United States national, and that personal jurisdiction might be established at some point if that presumption continued to hold and other jurisdictional facts were proven.”
The judge acknowledged that the effectiveness of the initial service of the subpoena was contingent on Davies’ U.S. citizenship, which was no longer valid.
Potential Paths Forward and International Jurisdiction
With Davies’ changed citizenship status in mind, the judge hinted at alternative avenues for ensuring compliance. He suggested that foreign representatives might explore compelling Davies’ cooperation through the legal framework of Singaporean courts. Consequently, the judge ruled against the contempt motion, underscoring the U.S. court’s limited jurisdiction over Davies.
Co-founder Su Zhu, also a 3AC co-founder and a Singaporean national, faced a similar summons through X. However, given his residence outside the United States, he remained beyond the reach of the subpoena. It’s worth noting that both Davies and Zhu had largely eluded public knowledge since 3AC’s collapse in July 2022.
Nevertheless, Davies’ lawyers explicitly mentioned his residence in Singapore in the August 1 filings.
Recovering Funds and Debts
The stakes remain high for 3AC, as liquidators pursue the recovery of approximately $1.3 billion in funds from the co-founders. The firm’s reported debt to creditors stands at a staggering $3.5 billion. Notably, earlier this year, Davies and Zhu played a role in the launch of Open Exchange, a platform designed to facilitate the trading of claims against insolvent cryptocurrency companies.
Read More:
Summer Bashes by Crypto Collectives: Exploring the Friends With Benefits DAO Festival Scene