The Monetary Authority of Singapore (MAS) has issued a nine-year prohibition order against Kyle Davies and Su Zhu, co-founders of the crypto hedge fund Three Arrows Capital (3AC), for alleged violations of the country’s securities laws. The ban, effective since September 13, 2023, prohibits them from engaging in regulated activities and holding positions as directors or substantial shareholders in any capital market services business in Singapore.
MAS’s decision to bar Three Arrows Capital founders Davies and Zhu came after further investigations into the bankrupt 3AC and its co-founders revealed additional securities law violations. Among the key violations cited by MAS were the failure to notify the central bank of a new business representative at 3AC, providing false information to regulators, and a lack of an appropriate risk management framework.
Loo Siew Yee, Assistant Managing Director of Policy, Payments, and Financial Crime at MAS, emphasized the seriousness of the violations, stating, “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.”
This action follows MAS’s reprimand of 3AC in June, when the hedge fund was criticized for providing false information, failing to report directorship changes, and exceeding legal asset management limits. The regulatory scrutiny intensified after 3AC filed for bankruptcy amid a crypto market crash caused by the collapse of the Terra ecosystem, exposing the fund to substantial loan defaults due to its leveraged crypto positions.
Creditors are now claiming that 3AC owes up to $3.5 billion in debt, and liquidators are seeking to recover approximately $1.3 billion from Zhu and Davies. Notably, these debts were allegedly incurred when 3AC was already insolvent, raising questions about the fund’s financial management and the responsibilities of its founders.
The ban imposed on Kyle Davies and Su Zhu reflects MAS’s commitment to maintaining the integrity of Singapore’s financial markets and enforcing regulatory compliance within the cryptocurrency sector. It also serves as a warning to senior managers and entities operating in the cryptocurrency space that regulatory violations will not be tolerated, and severe penalties will be imposed for non-compliance.
The cryptocurrency industry continues to evolve rapidly, and regulators around the world are closely monitoring its developments to ensure that market participants adhere to established rules and standards. Singapore’s actions in this case underscore the importance of regulatory oversight and the consequences of disregarding such oversight within the crypto sector.
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