SEC Questions $166 Million Legal Costs in Terraform Labs Case
The U.S. Securities and Exchange Commission (SEC) argued this week that crypto firm Terraform Labs should have restrictions placed on its ability to pay legal costs during its ongoing bankruptcy case.
The regulator took a specific aim at a $166 million retainer payment to law firm Dentons, according to Reuters.
Key Points:
- SEC: Payment may have aimed to avoid future judgment in a fraud lawsuit.
- Terraform filed for bankruptcy after a partial SEC victory in a crypto fraud case.
- Wants to pay $6.3 million in employee legal fees and $1.3 million for a separate UK lawsuit.
- SEC: Lawyer payment raises conflict of interest and oversight concerns.
- Calls for Dentons to return $81 million have fees approved by the court.
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The SEC accused Terraform of siphoning money into a legal “slush fund” that could prevent investors and creditors from being repaid. Additionally, most of the Dentons transfers came in the 90 days before bankruptcy.
Terraform filed Chapter 11 after a judge found it violated securities laws related to the failed TerraUSD stablecoin. The resulting crypto market volatility contributed to multiple major industry bankruptcies.
SEC wants $81 million returned by Dentons
The SEC now argues the Dentons retainer undermines visibility into Terraform’s spending and could ultimately be clawed back to pay other creditors. In addition, it wants $81 million returned and legal payments approved by the bankruptcy court.
A hearing on the dispute is expected for March 5. The outcome could impact Terraform’s ability to mount its desired legal defense as it aims to appeal the SEC lawsuit setback that preceded its bankruptcy filing.
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The SEC action also highlights ongoing uncertainty around crypto bankruptcies and how investor recoveries will be balanced with firm defenses. More legal battles are likely on the horizon regarding Terraform’s remaining assets.
