Singapore Court to Deliberate on $140M Disagreement Involving DeFiance Capital and Teneo Liquidators

Background of the Dispute

A financial tussle of $140 million is unfolding between investment fund DeFiance Capital and Teneo, the liquidators overseeing the assets of the Three Arrows Capital (3AC) entity. At the heart of the issue lies the allocation of assets managed by DeFiance Capital. The fund, while operating autonomously, was integrated into 3AC’s corporate framework.

According to judicial records accessed from The Block, Teneo asserts that these funds belong to the 3AC’s creditors, while DeFiance Capital contends that they should be segregated and reverted to its stakeholders.

Teneo’s representatives had expressed reservations about the case being convened and advocated for the trial to be held in the British Virgin Islands, aligning with the original structuring of the fund. Contrarily, DeFiance Capital’s stance was to have the hearing in Singapore, considering the location of its founder, Arthur Cheong, and its pool of investors.

Decision in Favor of Singapore

Singapore’s judiciary, represented by Judge Chua Lee Ming, has ruled that the case will proceed in Singapore. The judgment, based on an August 8 hearing, provided two primary justifications:

1. The digital assets held by DeFiance Capital are stored in Singapore.
2. The trust had its substantial origins in Singapore.

Furthermore, the judge emphasized the need to examine certain evidence, highlighting concerns regarding Cheong’s influence over the fund.

Reacting to this decision, DeFiance Capital’s Arthur Cheong commented, “We are quite elated with the judgment as it significantly supports our stance.” Blossom Hing, an attorney from Drew and Napier, representing DeFiance, also welcomed the decision, underscoring its potential to provide essential evidence for fair resolution.

On the other hand, Teneo has yet to release an official statement.

Concurrently, the British Virgin Islands is also deliberating on a similar case. This might potentially result in two simultaneous judgments on the identical matter.

Assets in Question

The assets that are the subject of the dispute comprise $115 million in digital currencies and NFTs, currently in the possession of DeFiance Capital. Additionally, there are 69 SAFE/SAFT agreements inked under 3AC’s name. Estimations of the total value vary, with Teneo quoting $141 million, and DeFiance Capital approximating around $120 million. The discrepancy, as per Cheong, stems from the intrinsic challenges in evaluating such agreements.

DeFiance Capital’s Transition from 3AC

Established in August 2020, DeFiance Capital functioned within the 3AC ambit but had a distinct shareholder category. With its own team and office space, the fund operated with significant autonomy, led by Cheong. A fraction of its administrative fees was remitted to 3AC as per their mutual agreement.

By February 2022, a divergence emerged when 3AC’s founders, Kyle Davies and Su Zhu, proposed relocating to Dubai, an idea Cheong declined. This led to the inception of two Singapore-based firms in May 2022.

Following this, DeFiance Capital loaned $35 million in USDC stablecoin to 3AC in May. Separate from the ongoing legal dispute, this loan places the fund as a conventional creditor concerning these finances.

The following month saw the founders of 3AC transfer specific legal rights related to DeFiance Capital, moving several assets out of the 3AC structure. However, this transition was not completed when 3AC declared bankruptcy.

In recent developments, Cheong has returned to active investing, securing approximately $20 million for a new venture, the DeFiance Liquid Venture Fund. This new endeavor operates distinctly from the entities entangled in the legal disputes.