- The Terraform Labs bankruptcy filing was targeted at tackling the ongoing legal battle with the Securities and Exchange Commission.
- Do Kwon, the SEC, and Terraform Labs are scheduled for trial in the upcoming month.
- Do Kwon and Terraform Labs face allegations of violating securities laws and orchestrating market manipulation.
The Securities and Exchange Commission (SEC), Do Kwon, and Terraform Labs have been at loggerheads for two years as accountability efforts for the 2022 UST collapse continue to intensify. It seemed as though the debacle would soon come to a close in December 2023 when the commission scored a win in its securities claims against Terra, securing a trial date.
In their latest move, the firm filed for Chapter 11 bankruptcy, but there’s more to it than meets the eye.
Terraform Labs Bankruptcy Filing, Defense, or Desperation?
A January 30 court document has revealed that the Terraform Labs bankruptcy filing is part of its ongoing efforts to resolve the SEC’s claims against it.
The filing, made on January 21, named Do Kwon as the firm’s majority shareholder and unveiled a 15-person creditor list. The 14-page document also declared up to $500 million in assets, which are reserved to settle the firm’s liabilities in a corresponding amount.
Terraform Labs CEO Chris Armani emphasized that the move is “critical” in pursuing an appeal to the SEC’s lawsuit to protect against post-trial liquidation. He added that the potential money judgment in the SEC Enforcement Action may be difficult to fulfill, which could jeopardize the firm’s existence.
“Without the protection of chapter 11, the Debtor would likely have to liquidate after the trial and entry of final judgment, forfeiting its right to an appeal and causing disastrous consequences for the Debtor’s business.”
Armani further argued that the SEC lacks jurisdiction over Terraform Labs, asserting that its cryptocurrency tokens “are not securities”, despite the recent court ruling.
Terraform Labs’ Offerings Not Securities?
While the prolonged debate over the securities status of Terra’s UST was put to rest by Judge Jed Rakoff on December 29, Terraform Labs CEO asserted that the verdict was unacceptable.
The judge had emphasized that “there is no genuine dispute that UST, LUNA, wLUNA, and MIR are securities because they are investment contracts” and ruled that Terraform Labs, under the governance of Do Kwon, violated the U.S. Securities Act.
Armani contended that the Court’s summary judgment decision should be reversed, stating that “the cryptocurrency tokens at issue are not securities under the Acts.”
Wednesday, January 31, is set as the first day for the Terraform Labs bankruptcy filing hearing, and the securities fraud claims trial against the SEC is scheduled to begin on March 25, 2024.
On the Flipside
- Terraform Labs founder Do Kwon is currency incarcerated in Montenegro on document forgery charges.
- Both Singapore and South Korea seek to hold Do Kwon accountable for the 2022 Terra Collapse.
- Do Kwon faces up to 40 years behind bars if convicted.
Why This Matters
The tactics by Terraform Labs and Do Kwon showcase their actions to resist ongoing efforts to hold them accountable for the 2022 UST fallout and mitigate potential financial consequences.
Read more on Grayscale’s shaky market position as ETFs thrive:
Bitcoin ETFs Gather 150K BTC as Grayscale’s Dominance Wavers
To find out more about the events leading up to the SEC v. Do Kwon trail, read here:
SEC Approves Do Kwon and Terraform Labs Trial Delay Request