Liquidators of Three Arrows Capital (3AC) are seeking $1.3 billion from TerraForm Labs Pte., the digital assets company co-founded by Do Kwon. The claim relates to losses 3AC experienced following the 2022 crash of the company's TerraUSD (UST) and Luna (LUNA) tokens.

According to a document filed in the U.S Bankruptcy Court for the District of Delaware on Aug, 9, the liquidators allege TerraForm Labs "engaged in a scheme to manipulate the open market for LUNA and UST in a manner that artificially inflated the price for the assets, which among other things, induced 3AC to purchase LUNA and UST."

They claim this led 3AC to realize huge losses on its investment in these tokens and its other holdings.

Three Arrows Capital, a cryptocurrency hedge fund, collapsed after the Luna and TerraUSD crash, along with other crypto businesses. Its co-founders then launched another venture capital fund about a year ago. Following the bankruptcy, a British Virgin Islands court appointed liquidators from Teneo to recover assets for 3AC's creditors.

Last month, the Securities and Exchange Commission (SEC) announced that Terraform Labs and its former CEO Do Kwon have agreed to pay around $4.5 billion as part of a settlement agreement. The defendants were found liable on civil fraud charges following the $40 billion collapse of TerraUSD (UST) and Terra (LUNA).

Court documents show 3AC acquired $190 million worth of Luna in January 2022 as part of a $1 billion deal with other investment firms. By late April 2022, 3AC held $462 million worth of Luna. Following a TerraUSD sell-off, this value decreased to $2,700 by May 14. The net value of 3AC's other digital holdings reportedly fell by $858 million in the same period.

TerraForm filed for Chapter 11 bankruptcy in January and is preparing to liquidate. Kwon was arrested in Montenegro last year and faces charges in the U.S. and South Korea. A Montenegro court ruled Kwon should be extradited to South Korea.

Edited by Stacy Elliott.