Three Arrows Capital (3AC) liquidators are seeking $1.3 billion from the bankrupt crypto hedge fund's founders, saying they took on additional debt in the months before its collapse even though it was already insolvent, Bloomberg reported Tuesday.

The liquidators, partners at consulting firm Teneo, discussed the allegations with Three Arrows creditors, according to the report, which cited a person familiar with the matter.

The fund suffered big losses on the collapse of the Terra ecosystem starting in May 2022, and founders Su Zhu and Kyle Davies took on more leverage. The liquidators are seeking to recover the funds in a British Virgin Islands court, the person said.

3AC's collapse was one of the key events precipitating last year's crypto winter, leading to knock-on failures of other crypto firms with exposure to the hedge fund. These included Voyager Digital, Celsius Network and Genesis Asia Pacific, which all subsequently filed for bankruptcy protection. Genesis, like CoinDesk, is part of the Digital Currency Group.

A Teneo spokesperson confirmed the accuracy of the report to CoinDesk but declined to comment further.

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