Singapore High Court Upholds DeFiance Capital’s Claim Against Three Arrows Capital

Singapore’s High Court has upheld DeFiance Capital founder Arthur Cheong’s trusts over assets contested in bankruptcy proceedings, establishing the rights of investors in cryptocurrency assets and trust law.

Singapore’s High Court recently ruled against Three Arrows Capital (3AC), a bankrupt cryptocurrency hedge fund, in its attempt to dismiss a lawsuit brought by Arthur Cheong, the founder of Web3 investment firm DeFiance Capital. The court recognized a valid fiduciary relationship between DeFiance Capital and 3AC, recognizing that the assets at issue were indeed held in trust for DeFiance Capital’s investors. This ruling stems from a lawsuit filed by Cheong in April 2023, in which he argued that DeFiance Capital’s investors were the rightful beneficiaries of the assets held by 3AC and that those funds should not be used to settle creditor claims against 3AC​​​​.

The history of this legal battle goes back to an agreement between Cheong and 3AC founders Su Zhu and Kyle Davies to launch an independent fund on the 3AC Group platform, which Cheong would own and control. This fund had access to 3AC’s resources and maintained separate accounts and portfolios under Cheong’s name. Despite the collapse of 3AC in July 2022 and its subsequent bankruptcy, DeFiance Capital was granted permission by the High Court of Singapore to sue 3AC’s estate to reclaim the assets still under 3AC’s control. The court found that the cryptocurrency in the Fireblocks wallets, which remained under 3AC’s control, were held in trust, countering 3AC’s claims that DeFiance Capital’s claim was without merit.

This decision is significant for several reasons, not the least of which is the confirmation of fiduciary relationships in the context of cryptocurrency assets and the jurisdiction of Singapore courts in such disputes. It highlights the legal complexities surrounding the control and ownership of digital assets in the evolving crypto landscape. The decision also highlights the challenges that investors and fund managers face in securing and enforcing their rights to digital assets, especially when the entities holding those assets go bankrupt.

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