Terraform Labs Sees Bankruptcy as Key to Contest SEC’s Lawsuit
Collapsed stablecoin developer Terraform Labs filed for Chapter 11 bankruptcy protection on January 21st. The move was partly to boost prospects of appealing its ongoing fraud lawsuit from the SEC.
In a filing Tuesday, CEO Chris Amani said bankruptcy shelters could enable challenging the case without needing to post bonded assets.
Key Reasons:
- Allow an appeal without massive upfront collateral requirements.
- Aims to discharge liabilities and resolve creditor claims in process.
- Firm holds $28M in BTC, $7M other coins and $87M Luna
Amani contends cryptocurrencies connected to Terra’s ecosystem shouldn’t qualify as securities, meaning they believe the SEC holds no legal jurisdiction regarding fraud allegations.
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The agency disagrees, stating in charges last February that Terraform and founder Do Kwon’s entire project centers around offering unregistered security tokens to public investors from South Korea to the United States.
Terraform Labs hopes bankruptcy proceedings can aid financially
Though a judge already ruled favorably on the SEC’s motion for summary judgment, no final decision or penalties have been rendered.
Terraform is hoping Chapter 11 proceedings can provide financial breathing room to mount their anticipated appeal against existing conclusions on the case’s core arguments.
“A successful appeal would eliminate the single largest claim against the Debtor, thereby benefiting the Debtor, its creditors, and the community more broadly,” the filing reads.
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A separate filing from Kwon’s legal team last week succeeded in delaying the pending trial to March 25. Terra’s collapse was one of the most catastrophic events in 2022.
Soon after the collapse, the whereabouts of Do Kwon were relatively unknown. He was later arrested in Montenegro in March 2023 while he was attempting to flee the country. Currently, the United States and South Korea are seeking the Terra co-founder’s extradition.
