Crypto hedge fund accused of ‘criminal’ mismanagement in dispute over FTX

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Swiss prosecutor raided Geneva-based Tyr last August following complaint by investor TGT.

One of the cryptocurrency industry’s highest-profile hedge fund firms has been accused of “criminal” mismanagement and raided by a Swiss prosecutor, in a dispute with an investor over losses suffered following the collapse of crypto exchange FTX.

Geneva-based Tyr Capital Partners is alleged to have ignored an internal risk limit and investor warnings over its exposure to FTX, according to legal documents filed in the Cayman Islands by an investor and seen by the Financial Times. 

The action has been brought by TGT, a fund that invested with Tyr and that is now trying to wind up the portfolio and take control of the remaining assets, including a $22 million claim against FTX. TGT invests money from a group of companies that includes crypto wealth platform Yield App. 

Tyr — which denies the allegations brought against it by TGT — is led by Edouard Hindi, the former head of Deutsche Bank’s energy proprietary trading, and Olivier Trombert, ex-head of Société Générale’s energy options desk.

The hedge fund has been viewed as a relative success story in the crypto hedge fund sector, even as other names such as Three Arrows Capital and Galois Capital have folded. The firm, which manages around $140 million in assets, has profited in recent years from trading discrepancies in prices of tokens such as bitcoin and ether.

TGT claims in the filing that it raised concerns with Tyr chief investment officer Hindi about the financial health of FTX between November 7 and 10, 2022, the days leading up to the collapse of Sam Bankman-Fried’s exchange. However, Tyr only tried to withdraw its assets from FTX around November 11, the day the exchange filed for bankruptcy, according to the filing.

FTX’s administrators have since abandoned plans to revive the defunct exchange. Customers are expected to be paid back based on the value of their investments at the time of FTX’s collapse, when cryptocurrencies such as bitcoin and ether were less than half their current prices.

TGT also filed a criminal complaint about Tyr to the Geneva prosecutor in April last year, alleging “the criminal offence of criminal management” and requesting a “dawn raid” on the fund manager’s offices. 

The search, in which the prosecutor seized documents, took place on August 17 last year, according to a person familiar with the details. Hindi was summoned to appear before the prosecutor as a so-called person providing information — a status between a witness and being accused — according to the filing in the Cayman Islands.

“The procedure is still ongoing,” said a spokesperson for the Geneva prosecutor.

A person close to Tyr said that Hindi was not summoned, but that Tyr asked for a meeting with the prosecutor “a couple of days” after the search took place.

“Given there are ongoing investigations as a result of these false claims, we cannot comment in detail as we refuse to prejudice those investigations,” Tyr said in a statement.

“There is no valid legal claim that can be asserted” by TGT against Tyr, it said, and added that it “respects all relevant laws” and has “complied with its regulatory and contractual obligations.” 

The person close to Tyr disputed TGT’s account of the warnings ahead of FTX’s collapse.

“We are currently working through the legal process in Cayman Islands to wind up [the fund],” said TGT director Justin Wright. TGT added it “could not comment further as legal proceedings are ongoing.”

TGT also claims that Tyr ignored an internal risk requirement limiting exposure to any single counterparty to 15 per cent of assets. Tyr told the prosecutor that an independent committee, set up by the fund, had found that it did not breach internal rules, according to the filing, which the FT obtained via OffshoreAlert website.

The filing also shows that the claim against FTX was transferred to a new fund. A small portfolio containing TGT’s remaining assets suffered an 84 per cent loss in dollar terms between January and October last year, according to FT calculations based on performance data in the filing.

That fall in assets, according to the person close to Tyr, was driven by the legal cost of defending against TGT’s legal claims and the fund’s running costs, rather than trading decisions, and equated to around $800,000.

The 84 per cent loss “is false and wholly disputed”, Tyr said.

“There has been a serious and demonstrable lack of probity in the conduct of the fund’s affairs,” TGT said in the filing. It added it had “irretrievably and justifiably lost trust and confidence in the fund due to mismanagement” and called for an independent investigation into how the fund was run. 

TGT, whose directors are Yield App co-founders Wright and Jason Corbett, also took aim in its filing at the fund’s independent committee, which it said has refused to take part in the criminal proceedings in Switzerland. 

The committee has also “done nothing to stop the unjustified depletion” of the fund even though no trades had been made since around the time of FTX’s collapse, the petition alleges.

“The fund’s board of directors and independent committee rejects entirely the allegations of mismanagement made against them by TGT/Yield App,” said Carlos Mariano Grandval, who is a director and part of the independent committee. “The fund intends to apply to strike out the petition.”

Casey McDonald, a director and the other member of the independent committee listed in the petition, did not respond to a request for comment.

Copyright The Financial Times Limited 2024