The liquidators overseeing the dissolution of Three Arrows Capital (3AC) have filed a lawsuit against Su Zhu and Kyle Davis, co-founders of the hedge fund, seeking the return of $1.3 billion. The lawsuit alleges that Zhu and Davis raised this amount shortly before the collapse of 3AC, which is part of the total claims against the firm totaling $3.3 billion.

During a meeting with the hedge fund's creditors, the liquidators discussed the allegations against Zhu and Davis, according to sources cited by The Block. The lawsuit claims that the co-founders increased their leverage between May and June 2022, despite heavy losses incurred by 3AC due to investments in LUNA tokens. The liquidators argue that the hedge fund was already insolvent during that period.

The allegations against Zhu and Davis further contribute to the mounting claims against them. Previously, the liquidators had expressed frustration with the lack of cooperation from the co-founders during the investigation.

The legal action taken by the liquidators underscores the seriousness of the situation surrounding Three Arrows Capital. The demand for the return of $1.3 billion raises significant questions about the actions of Zhu and Davis in the lead-up to the collapse of 3AC. As the legal proceedings unfold, it remains to be seen how the court will rule on the matter and whether the liquidators will be able to recover the claimed funds.

The outcome of this lawsuit will have implications not only for the liquidation process of Three Arrows Capital but also for the reputation and future endeavors of Su Zhu and Kyle Davis. As the investigation continues, the level of cooperation from the co-founders will likely play a crucial role in determining accountability and potential resolutions.

The liquidators' pursuit of these claims highlights the importance of thorough oversight and accountability within the hedge fund industry. It serves as a reminder of the risks involved in investment activities and the potential consequences when financial institutions face insolvency. The resolution of this case will provide insights into the legal and regulatory mechanisms in place to address such situations and ensure the fair distribution of remaining assets to creditors.