The liquidator of Three Arrows Capital (3AC) may try to reclaim about $1.2 billion from Digital Currency Group (DCG) and crypto lender BlockFi, clawing back payments made by the hedge fund as liquidation loomed but before the process started.

A confidential July 7 report from Teneo, the liquidator, that CoinDesk reviewed referred to more than $1 billion of “prospective claims” against DCG and its Genesis lending subsidiary consisting of “both preference claims and claims which have resulted from issues around the perfection of loan and security documentation.” It also noted more than $220 million of “preferential payments” to BlockFi.

Teneo declined to comment on any plans to claw back funds. DCG and BlockFi did not return requests for comment. DCG, an investor in crypto companies, is the parent company of CoinDesk.

Preference claims come into play if the hedge fund was aware it was making payments that put one or more creditors into a better position than other creditors. In this case, they concern transactions made by 3AC during what’s known as the insolvency twilight zone following the collapse of the Terra Luna project earlier in 2022.