The Crypto Geniuses Who Vaporized a Trillion Dollars
After the firm’s traders stopped responding to messages, lenders tried calling, emailing, and messaging them on every platform, even pinging their friends and stopping by their homes before liquidating their collateral. Some peered through the door of 3AC’s Singapore office, where weeks of mail was piled up on the floor. People who had thought of Zhu and Davies as close friends, and had lent them money — even $200,000 or more — just weeks earlier without hearing any mention of distress at the fund, felt outraged and betrayed. “They are certainly sociopaths,” says one former friend. “The numbers they were reporting in May were very, very wrong,” says Kasselman. “We firmly believe they committed fraud. There’s no other way to state it — that’s fraud, they lied.” Genesis Global Trading had lent Three Arrows the most of any lender and has filed a $1.2 billion claim. Others had lent them billions more, much of it in bitcoin and ethereum. So far, liquidators have recovered only $40 million in assets. “It became clear that they were insolvent but were continuing to borrow, which really just looks like a classic Ponzi scheme,” says Kasselman. “Comparisons between them and Bernie Madoff are not far off.”
When Three Arrows Capital filed for Chapter 15 bankruptcy, the process for foreign companies, on July 1 in the Southern District of New York, it was more or less a formality. But the filing itself did contain some surprises. Even as creditors rushed to file their claims, 3AC’s founders had already beaten them to it: The first person in line was Zhu himself, who on June 26 filed a claim for $5 million, along with Davies’s wife, Kelly Kaili Chen, who claimed she had lent the fund close to $66 million. The only documentation they had to back up their claims were simple, self-attested statements that did not specify when the loans had been made or the purpose of the funds. “That’s a total Mickey Mouse type of operation,” says Walsh. While insiders were unaware of Chen’s involvement in the firm, they believe she must have been acting on Davies’s behalf; her name appears on various firm entities, likely for tax reasons. Both Zhu’s and Davies’s mothers have also filed claims, according to people familiar with the situation. (Zhu later told Bloomberg News, “They’re gonna, you know, say that I absconded funds during the last period, where I actually put more of my personal money back in.”)
Since the firm filed for bankruptcy, the liquidators hadn’t been able to get in touch with Zhu and Davies until just before press time and still don’t know where they are, according to people familiar with the situation. Their lawyers said the co-founders have received death threats. On an awkward July 8 Zoom call, participants with Zhu’s and Davies’s usernames logged on with their cameras off, refusing to unmute themselves even as the pair of British Virgin Islands liquidators fired dozens of questions at their avatars.
The authorities are also taking a closer look at Three Arrows. The Monetary Authority of Singapore — the country’s equivalent of the SEC — is investigating whether 3AC, which it already reprimanded for providing “false or misleading” information, committed “further breaches” of its regulations. In the U.S., SEC enforcement attorneys are now being copied on all Three Arrows court filings.
On July 21, Zhu and Davies gave an interview with Bloomberg “from an undisclosed location.” The interview is extraordinary for several reasons — Zhu protests the headlines about his free-spending lifestyle by noting that he bikes to work, doesn’t go clubbing, and “only has two homes in Singapore” — but also because the partners blame 3AC’s implosion on their failure to foresee that the crypto market could go down. Neither says the word supercycle, but the reference is clear enough. “We positioned ourselves for a kind of market that didn’t end up happening,” Zhu says, while Davies adds, “In the good times we did the best. And then in the bad times we lost the most.”
The pair also told Bloomberg they were planning to go to Dubai “soon.” Their friends say they’re already there. The oasis offers a particular advantage, say lawyers: The country has no extradition treaty with Singapore or the U.S.
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