The High Court of Singapore has denied Three Arrows Capital’s (3AC) attempt to dismiss a lawsuit by Defiance Capital founder Cheong Jun Yoong, affirming the legal standing of digital assets in trust disputes.
Singapore Court Upholds Defiance Capital’s Suit Against 3AC in Crypto Case
The High Court of Singapore has rejected a motion by the beleaguered crypto hedge fund Three Arrows Capital (3AC) to dismiss a lawsuit filed by Cheong Jun Yoong, founder of Web3 investment firm Defiance Capital.
Cheong, also known as Arthur Cheong, filed the suit in April 2023, asserting that Defiance Capital investors were the rightful beneficial owners of assets held in trust by 3AC. He argued that these funds should not be used to satisfy creditor claims against 3AC.
The genesis of the dispute traces back to the establishment of Defiance Capital as an “independent and standalone fund” on the 3AC platform. Under the arrangement, Cheong had access to 3AC’s resources, including its middle and back office infrastructure, fund administrators, and auditors. Despite its close operational ties with 3AC, Defiance maintained separate accounts and wallets under Cheong’s control, contributing 25% of its fees to 3AC founders Su Zhu and Kyle Davies.
By May 2022, Defiance Capital’s holdings included 22.3 million USDT and $93.8 million in various cryptocurrencies and fiat. Although Defiance Capital was later transferred out of 3AC and restructured as two separate entities in Singapore following 3AC’s move to Dubai, certain assets were not transferred as per a prior agreement.
The High Court’s decision, made public recently, delves into the nuanced legal arguments presented by both parties. Notably, the judgment acknowledged the potential for a trust relationship to exist, despite the wording of legal documents to the contrary. This point is critical, as it suggests that the assets under Defiance’s control might be exempt from being used to settle 3AC’s debts.
The court further established that the crypto assets in question, particularly those in Fireblocks wallets under 3AC control, were in trust. This finding challenges 3AC’s stance that such claims were without merit. Additionally, the court determined Singapore as the appropriate forum for the lawsuit, given the location of the individual controlling the wallet keys and the country’s legal nexus to the case.
This ruling marks a crucial milestone in the case and offers a glimmer of hope to Defiance Capital and its investors. It also sets a precedent in the crypto legal landscape, particularly concerning the treatment of digital assets and the application of trust law.
With the lawsuit against 3AC cleared to move forward, do you think Defiance Capital will be successful? Share your thoughts and opinions about this subject in the comments section below.
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