In what’s probably a sign of things going terribly wrong, two former billionaire crypto hedge-fund managers have disappeared, spurring a worldwide manhunt to find them as the broader industry freezes up. The two traders, Su Zhu and Kyle Davies, are co-founders of Three Arrows Capital, the Singapore-based fund that had once boasted of having as much as $10 billion in assets — pretty much all of it in digital currencies, non-fungible tokens, and the like. The duo — who were both educated at Phillips Academy Andover and Columbia University and both worked for Credit Suisse — may be responsible for billions of dollars of losses the world over.
The fund blew up last month following the May annihilation of two of the world’s largest digital currencies by market value, TerraUSD and Luna, which wiped out about $60 billion from the market in a few days. Three Arrows was very much at the center of that collapse, having invested heavily in the tokens and a high-yield savings-account-like program that attracted thousands of buyers before the whole thing came crumbling down. Since then, a handful of crypto lenders that did business with Three Arrows have frozen up or declared bankruptcy — with one, Voyager Digital, owed about $650 million just from its fund. Three Arrows has since been ordered by a British Virgin Islands court to liquidate its holdings in order to pay back its creditors — an order that has so far gone unheeded.
So now, Zhu and Davies have apparently disappeared into the digital ether. According to filings in Manhattan federal court, the hedge-fund managers have made only minimal contact with the company that’s in charge of selling off its assets, Teneo, a consulting firm. (Three Arrows filed for bankruptcy in New York following the liquidation order.) According to Russell Crumpler, the Teneo executive who’s heading up the liquidation, the talks with the co-founders have been basically nil. They’ve been locked out of the fund’s Singapore office and still apparently don’t have access to all their holdings. Three Arrows’ law firm only reached out on July 6, and there was a stilted Zoom call two days later, where the two hedge-fund managers may or may not have been present. “While persons identifying themselves as ‘Su Zhu’ and ‘Kyle’ were present on the Zoom call, their video was turned off and they were on mute at all times with neither of them speaking despite questions being posed to them directly,” Crumpler said in a July 8 declaration. He added in a footnote that Zhu is apparently trying to off-load Singapore property that’s valued in the tens of millions of dollars.
It isn’t unusual for crypto investors to remain in the shadows or hide behind pseudonyms, but what makes the Three Arrows case so different is how public Zhu and Davies were to begin with. Three Arrows was about as much of a known quantity as you could get, having been around for about ten years. Zhu had a podcast, went on Twitch to play chess with one of the game’s biggest influencers, and talked on the record with media outlets like Bloomberg. Davies, too, went on podcasts and YouTube shows to talk about all things crypto. These are people who were generally seen as being among the savviest and most respected in crypto trading — a notoriously volatile and unregulated field. The fact that they’ve up and disappeared amid a worldwide market collapse puts them in a small but notorious league of other magnates who have gone on the lam, including former Nissan CEO Carlos Ghosn, who snuck out of Japan in a box following a corruption investigation, or Jho Low, the Malaysian financier behind The Wolf of Wall Street who allegedly embezzled billions out of 1MDB, his country’s investment fund.
On Tuesday, though, a Manhattan federal judge green-lit subpoenas for Zhu and Davies, whose whereabouts are still unknown. The two told The Wall Street Journal that they are in fact cooperating with liquidators, and Zhu took to Twitter to post a letter from his attorney saying that they and their families had been threatened with “physical violence” and accusing Teneo of “baiting” them for not, uh, buying a cryptocurrency they’re invested in.
What happens next is that, presumably, Zhu and Davies would give up the full list of the fund’s assets and cooperate with the liquidators, who have now essentially taken the fund over in order to sell everything off. (The proceeds from that sale will go back to the companies and individuals who owe the fund money, but it’s by no means a guarantee that anyone will get all their money back.) Before any of that happens, though, Zhu and Davies have to come out of hiding.
Source: New York Magazine