Michael B. Schaedle and Evan Jason Zucker


Corrupt managerial behavior has been a driver in the collapse of the cryptocurrency market. Enforcing and defending claims against directors and officers, where the directors and officers are not living in the United States and may not be U.S. citizens, is a current judicial focus in the U.S. litigation system. In the Three Arrows Capital (“Three Arrows”) chapter 15 case, the U.S. Bankruptcy Court for the Southern District of New York (the “U.S. Bankruptcy Court”) addresses founder misconduct[1] and defines the limits of the United States’ broad discovery tools to aide a letterbox jurisdiction, like the British Virgin Islands (“BVI”), in corralling bad actors and subjecting them to forensic examination.
The Collapse of Three Arrows and the Obfuscations of its Founders’ Location
Three Arrows managed and invested digital assets. It was founded by Kyle Davies and Su Zhu. Davies was born in the United States, but he holds Italian and Singaporean passports. It is not known whether Davies renounced his U.S. citizenship but, as a matter of law, a person born in the United States is presumed to be a U.S. citizen.[2] Zhu was born in China and lived in San Francisco for some period of time in the last decade. Zhu, however, currently does not reside in the United States and his current residence is unknown. Zhu listed his nationality as Singaporean in company records.
On June 27, 2022, Three Arrows commenced an insolvency proceeding in the BVI. The BVI court appointed joint liquidators to investigate and recover assets for Three Arrows’ creditors. Prior to its liquidation, Three Arrows allegedly had over three billion dollars in assets under its management. At the direction of Davies and Zhu, these assets funded deals with cryptocurrency companies globally, including in the United States and Singapore. According to a Singaporean government agency, Three Arrows’ investment arm breached asset management protocols for a prolonged period, calling into question Three Arrows’ solvency and provided the agency with false and misleading information about its assets, liabilities, and value.
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