3AC accused of using client funds to cover margin calls

Head of Trading at 8 Blocks CapitalDanny Yuan said that hedge fund Three Arrows Capital (3AC) used $1 million of funds from a Hong Kong company in accounts it maintains to cover margin calls.

"24 hours ago our fund monitoring scriptdiscovered that about $1 million was missing from our accounts. We contacted Kyle Davis [co-founder of 3AC] and the operations team at Telegram about the missing funds - we did not receive answers. We tried to call them - they were online, but did not pick up the phone, ”wrote Yuan.

According to him, 8 Blocks Capital has been cooperating with 3AC since November 2020. According to the agreement signed at the time, the company uses the trading accounts of the hedge fund and pays a commission in return.

“So our agreement with them was this:we go out when we want. 100% PNL belongs to us. They must never mix our funds without permission (this increases the risk of liquidation of our positions), we, in turn, pay them a commission for the services, ”he explained.

Amid the collapse of the cryptocurrency market, 8 Blocks Capital needed funds to maintain positions on exchanges. The 3AC operations team has approved the withdrawal request. 

In connection with the continuation of the correction, the company filedanother application for a "big withdrawal" but received no response, Yuan said. He also noted that the hedge fund was actively trading with long leverage, because of which margin calls rained down on it.

“We learned that they had longleverage, and they received margin calls. Instead of answering them, they became silent. The platforms had no choice but to liquidate their positions, which caused the markets to fall further,” he wrote.

Yuan emphasized that 3AC was not abusedspeculating on client funds, but he certainly used them to pay off margin calls. The specialist urged the platforms on which the assets of the structure are still stored to freeze funds so that the fund's clients can receive compensation.

ForkLog requested a comment from 3AC but did not receive a prompt response.

Previously, information appeared online abouthedge fund insolvency. The structure actively used protocols like Aave, which, against the backdrop of a discount on sETH tokens from Lido and the collapse of the cryptocurrency market, led to large liquidations of its positions. 

The Block editor Frank Chaparro stated that3AC positions were also forcibly closed by a “top-tier exchange,” not just decentralized lenders. According to him, the management of the hedge fund never got in touch with counterparties.

Let’s remember that in February 2022, Three Arrows Capital led the LUNA token sale from LFG for $1 billion. In May, the Terra ecosystem collapsed, and its native cryptocurrency practically became worthless.