Three Arrows Capital Sues TerraForm Labs Over LUNA Losses

Three Arrows Capital's liquidators claim that TerraForm Labs was instrumental in the firm's financial ruination.

Three Arrows Capital, a cryptocurrency hedge fund that collapsed last year, is suing TerraForm Labs, the developer of the failed Terra blockchain, for $1.3 billion.

The lawsuit, filed in the United States District Court for the Southern District of New York on Friday, alleges that TerraForm Labs manipulated the prices of the LUNA and TerraUSD (UST) tokens, causing Three Arrows to lose money on its investments in the tokens.

Three Arrows, which was once one of the largest cryptocurrency hedge funds in the world, filed for bankruptcy in June 2023 after the collapse of the Terra ecosystem and a downturn in the cryptocurrency markets.

The hedge fund’s failure was one of the most high-profile bankruptcies in the cryptocurrency industry last year.

According to the lawsuit, Three Arrows began investing in LUNA tokens in early 2023. The hedge fund purchased $190 million in LUNA tokens, which were rapidly increasing in price at the time.

However, the lawsuit alleges that TerraForm Labs was manipulating the prices of LUNA and UST tokens to inflate their value artificially.

The lawsuit alleges that TerraForm Labs used a variety of methods to manipulate the prices of LUNA and UST tokens. These methods included buying and selling large amounts of the tokens on cryptocurrency exchanges to influence their prices and using a decentralized application (dApp) to burn UST tokens and mint new LUNA tokens, which also affected the prices of the tokens.

Three Arrows alleges in the lawsuit that it was not aware of TerraForm Labs’ alleged price manipulations and that the hedge fund relied on the public statements made by TerraForm Labs and Do Kwon, the company’s CEO, about the Terra ecosystem and its tokens.

The hedge fund claims that if it had known about the alleged price manipulations, it would not have invested in LUNA tokens.

Three Arrows is seeking $1.3 billion in damages from TerraForm Labs for the losses it incurred on its investments in LUNA and UST tokens. The hedge fund’s liquidators, who are overseeing the bankruptcy proceedings, are also seeking to have the court declare that TerraForm Labs’ actions constituted a fraud and a breach of contract.

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