3AC’s liquidators filed a lawsuit in Delaware on August 9, alleging that Terraform Labs provided misleading information regarding the stability of tokens in the Terra ecosystem - specifically Terra’s algorithmic stablecoin TerraUSD (USTC) and USTC-linked token Terra Luna (LUNA). filed a $1.3 billion lawsuit in federal court. This case was reported by the legal news service Law360.

At the center of the case is Terraform Labs, which is accused of misleading Singapore-based hedge fund 3AC about the stability of tokens in the Terra ecosystem.

3AC’s liquidators allege that Terraform Labs promotes these tokens “in a way that artificially inflates the price of the assets.” This caused 3AC to make large investments in Terra, which resulted in a massive collapse of the Terra ecosystem.

3AC liquidators are seeking compensation for the loss of direct investments in Terra due to these misrepresentations and omissions, as well as for the “complete loss of value” suffered by 3AC in its cryptocurrency investments as a result of the collapse of LUNA and UST.

This lawsuit was filed a few months after Terraform Labs co-founder Do Kwon was found liable for defrauding investors in a civil lawsuit with the U.S. Securities and Exchange Commission (SEC) in April 2024.

Previously, Kwon was released from prison in Montenegro following extradition requests from the United States and South Korea. Founded in 2012 by Columbia University graduates Su Zhu and Kyle Davies, 3AC managed up to $18 billion in assets at its peak and was one of the largest crypto hedge funds in the world.

However, just a few months after Terra’s collapse, 3AC filed for bankruptcy, unable to meet margin calls from its lenders. The company is currently going through bankruptcy proceedings in the British Virgin Islands.

Last year, a court in the British Virgin Islands barred 3AC co-founders Su Zhu and Kyle Davies from transferring or selling assets worth up to $1.1 billion. 3AC’s liquidator, Teneo, estimates that 3AC owes about $3.3 billion to creditors after its collapse in 2022.

The financial collapse experienced by 3AC had a huge impact on the cryptocurrency market. The collapse of Terra created huge losses and financial difficulties not only for 3AC, but also for many cryptocurrency firms. The lawsuit filed by 3AC against Terraform Labs once again revealed the importance of risks and regulatory controls in the cryptocurrency market.

This case could be a turning point for discussing transparency and trustworthiness issues in the cryptocurrency ecosystem. It can also help investors better understand the risks they may face in cryptocurrency investments and develop strategies to hedge such risks.

This case by 3AC highlights the regulatory gaps and possible fraud risks in the cryptocurrency market.