Terraform Labs Files for Bankruptcy to Appeal SEC Lawsuit Amidst Co-Founder’s Extradition
Summary:
Terraform Labs has filed for Chapter 11 bankruptcy as part of its strategy to appeal against the lawsuit brought by the United States Securities and Exchange Commission (SEC). CEO Chris Amani argues this move is essential for their legal battle and could negate the biggest claim against the debtor. The forthcoming appeal is set to challenge the SEC's authority to impose charges on the company and its co-founder, Do Kwon. Terraform Labs and Kwon face charges for a "multibillion-dollar crypto asset securities fraud". Kwon's fraud trial has been postponed to March 25, and both the U.S. and South Korea are seeking his extradition.
Filing for bankruptcy is part of Terraform Labs' strategy to appeal against the lawsuit it has been slapped with by the United States Securities and Exchange Commission (SEC). Terraform Labs' CEO, Chris Amani, indicated in his Jan. 30 submission to a Delaware Bankruptcy Court that initiating Chapter 11 bankruptcy proceedings is a valuable step in fighting its legal battle with the SEC. The company, which developed TerraClassicUSD (USTC)—a now-defunct stablecoin—submitted bankruptcy papers on Jan. 21. Under usual circumstances, to appeal against the SEC's ruling, Terraform Labs would have to provide a "supersedeas bond" amounting to 110% of the cumulative judgment. However, the protective provisions of Chapter 11 bankruptcy could potentially enable the company to progress an appeal without depositing the bond. A successful appeal would effectively negate the biggest claim against the debtor, thus benefiting the debtor, its creditors, and the community at large, said Amani. Terraform Labs believes that a Chapter 11 procedure is essential to counter the SEC’s enforcement drive. According to Amani, the company's forthcoming appeal will object to the SEC’s overreaching authority to impose charges on the organization or co-founder Do Kwon. He argues that Terraform Labs' crypto assets should not be classed as securities and asserts that the case is outside of the SEC's jurisdiction. Additionally, he mentions that Terraform Labs' treasury has about $28 million in Bitcoin (BTC), $7 million in assorted other digital currencies, and approximately $87 million in Luna (LUNA) tokens. In February of the previous year, the SEC brought civil charges against Terraform Labs and Kwon for allegedly orchestrating a "multibillion-dollar crypto asset securities fraud" tied to the tokens formerly identified as UST and Terra (LUNA). Around two weeks ago, the SEC agreed to postpone Kwon's impending fraud trial to March 25, following a request from his attorneys to delay the proceedings. Kwon's Terra Money ecosystem went under in May 2022, and he went missing until his arrest in Montenegro in March 2023 for attempting to leave the country using fraudulent travel papers. Both the U.S. and Kwon's native South Korea are pursuing his extradition, which may result in multiple sentences being applied in both countries. If extradited to South Korea, Kwon could be handed a 40-year prison term for his alleged criminal activities committed in his home country.
Published At
1/31/2024 3:03:59 AM
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