MAS slaps 9-year bans on founders of failed crypto hedge fund Three Arrows Capital

   2023-09-14 03:09

SINGAPORE – The founders of failed cryptocurrency hedge fund Three Arrows Capital have been banned by the Singapore regulator from taking part in the management, acting as a director or becoming a substantial shareholder of any regulated capital market services company here.

Mr Zhu Su and Mr Kyle Livingston Davies, both Singapore citizens and aged 36, have been issued prohibition orders lasting nine years.

When contacted by The Straits Times, Mr Zhu declined to comment on the ban.

The ban, which took effect on Wednesday, will also mean the pair cannot perform any regulated activity under the Securities and Futures Act 2001 (SFA), said the Monetary Authority of Singapore (MAS) on Thursday.

This comes more than a year after MAS reprimanded Three Arrows in June 2022 for breaching the SFA and the Securities and Futures (Licensing and Conduct of Business) Regulations (SFR).

Mr Zhu was chief executive and director of the crypto hedge fund, while Mr Davies was chairman and director. Media reports said their whereabouts are unknown.

Three Arrows was the first big crypto firm to go bankrupt in 2022, brought down by the collapse of cryptocurrencies Luna and TerraUSD in May that year.

Creditors claim Three Arrows owes up to US$3.5 billion (S$4.8 billion), and liquidators are seeking to recover around US$1.3 billion from Mr Zhu and Mr Davies, who allegedly racked up the losses when the company was already insolvent.

MAS in its statement on Thursday said the company failed to put in place an appropriate risk management framework to identify, monitor and address risks associated with the cryptocurrency and digital asset investments under its management.

As directors of Three Arrows, Mr Zhu and Mr Davies were primarily responsible for ensuring that the fund complied with regulatory requirements under the SFA and SFR, but the two men failed to discharge their duties and were responsible for the company’s breaches, MAS said.

Ms Loo Siew Yee, MAS assistant managing director for policy, payments and financial crime, said: “Senior management of fund managers are required to implement robust risk management measures to protect the interest of investors. MAS takes a serious view of Mr Zhu’s and Mr Davies’ flagrant disregard of MAS’ regulatory requirements and dereliction of their directors’ duties.

“MAS will take action to weed out senior managers who commit such misconduct.”

The regulator also said that Three Arrows provided false information in January 2022 over the employment of Mr Arthur Cheong Jun Yoong, who performed fund management activity on the company’s behalf between August 2020 and September 2021.

It also failed to notify MAS that Mr Cheong was hired between August 2020 and September 2021 as a portfolio manager to perform fund management activities on behalf of the company, and thus breached the SFR.

In response to queries by ST, an MAS spokesperson said the prohibition orders were issued following the completion of its investigation and internal decision-making processes.

The spokesperson added that the regulator has looked into persons involved in the case.

“Our investigations show that Mr Zhu and Mr Davies are primarily responsible for Three Arrows Capital’s breaches. We will not be taking actions against Mr Cheong in respect of Three Arrows Capital’s breaches.”

Three Arrows was set up in 2012 by Mr Zhu and Mr Davies, who went to the same school and university, and worked as traders at Credit Suisse.

The two men previously said the company, registered in the British Virgin Islands, had more than US$4 billion in assets under management at its peak.

Together with some others, they tried to stage a comeback at the start of 2023 with a new crypto exchange known as OPNX, six months after Three Arrows collapsed and two months after the infamous fall of Sam Bankman-Fried’s crypto exchange FTX.

In April, the Dubai authorities reprimanded the duo for operating and promoting OPNX without the required local licence.

Reports in mid-August said Dubai’s crypto regulator fined the two men, OPNX co-founder Mark Lamb and his wife and company CEO Leslie Lamb for violating marketing rules.

The Virtual Assets Regulatory Authority reportedly issued OPNX a fine of US$2.7 million in May that remains unpaid, while penalties of about US$54,500 for Mr Zhu, Mr Davies and the Lambs for breaching marketing rules have been paid.

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