Terraform Labs Sees Bankruptcy as Key to Contest SEC’s Lawsuit

Published: Jan 31, 2024
Written By:
Vignesh Karunanidhi
Milk Road Writer

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.

Read more: Ethereum Dencun Upgrade Goes Live On Sepolia Testnet

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.

Read more: Germany Seizes Over 50,000 Bitcoin (BTC) In Copyright Case

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.

Vignesh Karunanidhi

Vignesh has been a seasoned professional in the crypto space since 2017. He has been writing for over 6 years and specializes in writing and editing various types of crypto content, including news articles, long-form pieces, and blog posts, all focused on sharing the beauty of blockchain and crypto.

Vignesh Karunanidhi
Milk Road Writer
Vignesh has been a seasoned professional in the crypto space since 2017. He has been writing for over 6 years and specializes in writing and editing various types of crypto content, including news articles, long-form pieces, and blog posts, all focused on sharing the beauty of blockchain and crypto.