Hedge fund Three Arrows Capital (3AC) used $1 million in funds from a Hong Kong company in accounts it holds to cover margin calls, said Danny Yuan, chief commercial officer at 8 Blocks Capital.

“24 hours ago, our fund tracking scenario discovered we were missing about $1M in our accounts. We contacted Kyle Davis. [соучредитель 3AC] and the operational team on the loss of funds in Telegram – received no response. We tried to call them – they were online, but they did not pick up the phone,” Yuan wrote.

According to him, 8 Blocks Capital has been collaborating with 3AC since November 2020. According to the agreement signed at that time, the company uses the hedge fund’s trading accounts and pays a commission in return.

“So our deal with them was this: we go out whenever we want. one hundred% PNL it belongs to us. They should never mix our funds without permission (this increases the risk of liquidation of our positions), and we pay them a commission for services,” he explained.

Against the background of the collapse of the cryptocurrency market, 8 Blocks Capital needed funds to maintain its positions on the exchanges. The 3AC operations team approved the withdrawal request.

Yuan said that while the correction was ongoing, the company applied for another “big withdrawal” but received no response. He also noted that the hedge fund is actively trading with long leverage, which is why margin calls are pouring in on it.

“We learned that they had leverage all over the place and that they were receiving margin calls. Instead of answering, they were silent. The platforms had no choice but to liquidate their positions, which caused the markets to fall further,” he wrote.

Yuan stressed that 3AC does not misuse client funds, but strictly uses them to pay off margin calls. The expert urged the platforms where the assets of the structure are still stored to freeze the funds so that the fund customers can receive compensation.

ForkLog requested a comment from 3AC but did not receive a quick response.

Earlier, information about the bankruptcy of the hedge background appeared on the network. The structure actively used protocols such as Aave, which, against the background of the discount in sETH tokens from Lido and the collapse of the cryptocurrency market, led to a massive liquidation of its positions.

Block editor Frank Chaparro said 3AC positions were forcibly closed not just by decentralized lenders, but by a “top exchange”. According to him, the management of the hedge fund never contacted counterparties.

Recall that in February 2022, Three Arrows Capital led the sale of LUNA tokens from LFG for $ 1 billion. In May, the Terra ecosystem collapsed and the local cryptocurrency almost lost value.