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Singapore Bank Sanctions Crypto Fund Founders Over Regulatory Breaches

Two founders of 3AC face a nine-year ban by Singapore's bank for breaching securities regulations.

Fri, 15 Sep 2023, 10:48 am UTC

The Monetary Authority of Singapore (MAS), the nation's key financial regulator, recently imposed a nine-year ban on Kyle Davies and Su Zhu. The duo, co-founders of the cryptocurrency hedge fund, Three Arrows Capital (3AC), have been found guilty of breaching the country's securities regulations.

Starting September 13, Davies and Zhu are prohibited from engaging in any regulated activities. Moreover, they cannot serve as directors, manage, or hold significant shares in any capital market services business within Singapore's jurisdiction.

This punitive action against the two financiers was spurred by the MAS's deeper probe into the affairs of 3AC and its founders. The authority unearthed additional securities law infringements during its comprehensive investigation into the now-insolvent 3AC.

It was discovered that Zhu and Davies did not inform the MAS about 3AC's new business representative hire. The duo also misled the authority with incorrect details and demonstrated negligence in setting up an adequate risk management structure.

Loo Siew Yee, the Assistant Managing Director of Policy, Payments, and Financial Crime at MAS, commented on the severity of the transgressions. According to Yee, Zhu and Davies overtly neglected MAS's regulatory norms and fell short of their directorial responsibilities. She emphasized that the MAS remains vigilant and will address any top-tier managers who indulge in such unethical practices.

Trouble started brewing for 3AC a year ago. Before its bankruptcy declaration, the MAS warned the hedge fund for furnishing inaccurate data and not communicating about changes in Zhu's and Davies’ directorial roles. Furthermore, the fund exceeded the legal threshold for assets under management. The fund's downfall was accelerated by the cryptocurrency market downturn, chiefly due to the Terra ecosystem's collapse. This downturn caused 3AC's leveraged crypto positions to default on billions in loans.

As the dust settles, creditors have reported that 3AC owes approximately $3.5 billion. On the other hand, liquidators are on a mission to retrieve nearly $1.3 billion from the two founders. This hefty sum is believed to have been amassed as debt even when the company's financial health deteriorated.

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