The liquidators of defunct crypto hedge fund Three Arrows Capital defended their $1.53 billion claim against FTX months after the failed exchange called it "baseless," telling a Delaware bankruptcy judge that its assets at FTX were sold just weeks before its collapse in what amounts to "classic preference."

Three Arrows' liquidators in a partially redacted response filed Monday hit back at the FTX recovery trust's objection to their claim, arguing the trust "concocts its own reality" to support its arguments. The liquidators say FTX is attempting to deny that Three Arrows held individual assets and liabilities on the FTX exchange in a bid to escape their claims.

"The problem for the FTX Recovery Trust is that the facts simply do not support its new reality," said the liquidators, Russell Crumpler and Christopher Farmer.

Three Arrows' former leaders sold more than $1 billion in digital assets on the FTX platform to repay debts to FTX before the struggling hedge fund entered liquidation, according to the filing. That made FTX whole, but left Three Arrows' own customers with scraps.

The assets sold to repay FTX should have been used to distribute value to Three Arrows' creditors instead, according to the liquidators, who assert an unfair preference claim under British Virgin Islands law based on the alleged fact that the asset sales unjustly benefited FTX.

Yet FTX has charged that Three Arrows' only true asset on the exchange was its net account balance, in a ploy to "sweep under the rug" the millions of dollars worth of actual digital assets transferred away from Three Arrows' accounts, the liquidators say.

FTX's recovery trust is using that argument to dodge the liquidators' unfair preference claim, according to the filing. Still, if Three Arrows did not in fact own the assets it purports to, then FTX breached its contracts with the onetime hedge fund, the liquidators argue.

"If FTX's mishandling of those assets deprived the 3AC Debtor of its contractually promised ownership interest in them, then FTX's mishandling breached its contract with the 3AC debtor," they said.

FTX's recovery trust said in an objection in June that the Three Arrows liquidators were seeking to force other FTX creditors to "foot the bill for 3AC's failed strategy."

The trust claimed that the liquidators were attempting to inflate their claim by isolating Three Arrows' account sub-balance for fiat currency assets from the sub-balance of digital assets, even though the balance for customer accounts on FTX was a "single, comprehensive figure" that bundled together every kind of tradeable asset.

The Three Arrows liquidators have asserted that about $1.53 billion of assets the hedge fund held on FTX's platform was liquidated over the course of roughly two days in June 2022, just months before FTX's own collapse. The crypto investment firm initially filed a $120 million proof of claim but amended it later, after the exchange provided more information regarding the alleged value of the assets.

A Delaware bankruptcy judge sided with Three Arrows in March 2025 by allowing that amended claim, overruling FTX's arguments that the change was made in bad faith and designed to delay the Chapter 11 case.

But FTX says the liquidators' claim misrepresents the actual value of 3AC's assets, which in FTX's telling were worth only about $284 million as of June 12, 2022.

The value of those assets plummeted because of market declines, not actions taken by FTX, according to its objection. The investment firm had been increasing its exposure to bitcoin through derivatives contracts, so when bitcoin prices started cratering in mid-2022, 3AC's losses grew larger, FTX argued.

3AC's claim depends on a "double-counting" of both assets and debts, according to the objection. The hedge fund borrowed funds to buy bitcoin via FTX's margin program, increasing its negative U.S. dollar balance. But in its proof of claim, the firm counted the value of the assets while "disclaiming any responsibility for" the negative dollar balance that grew as the hedge fund borrowed funds to buy crypto, FTX said.

A spokesperson for FTX declined to comment Tuesday. Counsel for the liquidators didn't respond to a request for comment.

The FTX Recovery Trust is represented by Matthew R. Pierce, Adam G. Landis, Matthew B. McGuire and Kimberly A. Brown of Landis Rath & Cobb LLP and Andrew G. Dietderich, James L. Bromley, Brian D. Glueckstein and Benjamin S. Beller of Sullivan & Cromwell LLP.

The Three Arrows Capital liquidators are represented by Christopher Harris, Adam J. Goldberg, Nacif Taousse, Zachary Proulx and Tiffany Ikeda Austin of Latham & Watkins LLP and John W. Weiss, Joseph C. Barsalona II and Alexis R. Gambale of Pashman Stein Walder Hayden PC.

The case is In re: FTX Trading Ltd. et al., case number 1:22-bk-11068, in the U.S. Bankruptcy Court for the District of Delaware.