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Terraform Labs announced that its decision to file for bankruptcy would help it follow the appeal process of the lawsuit brought by the United States Securities and Exchange Commission (SEC). Terraform Labs CEO Chris Amani stated in his application to the Delaware Bankruptcy Court on January 30 that Chapter 11 bankruptcy is critical to successfully appealing the case with the SEC.
Executive’s Noteworthy Statements
Terraform Labs filed for bankruptcy on January 21. To appeal against the SEC, Terraform Labs generally had to pay a “supersedeas bond” worth 110% of the total judgment. However, Chapter 11 bankruptcy protections could allow the firm to appeal without having to post collateral:
“A successful appeal would eliminate the largest claim against the debtor, thereby benefiting the debtor, its creditors, and the community at large.”
Amani wrote that in the upcoming appeal, the firm will argue that the SEC does not have the necessary authority to charge the company or its founding partner Do Kwon. Amani, defending that the crypto assets owned by Terraform Labs cannot be classified as securities, claimed that the case falls outside the SEC’s jurisdiction.
Amani also claimed that Terraform Labs’ treasury contains approximately $28 million worth of Bitcoin, $7 million worth of various cryptocurrencies, and about $87 million worth of Luna tokens.
What Happened After Terraform Labs’ Bankruptcy?
In February 2023, the SEC filed a lawsuit against Terraform Labs and Kwon, accusing both of orchestrating a multi-billion dollar securities fraud involving crypto assets formerly known as UST and LUNA. The latest filing came about two weeks after the SEC agreed to postpone Kwon’s upcoming fraud trial to March 25, following a request from his legal team to delay the case.
Kwon’s Terra Luna ecosystem collapsed in May 2022. Shortly after the firm’s bankruptcy, Kwon’s whereabouts were unknown until his arrest in Montenegro in March 2023, following an attempt to flee the country with fake travel documents. Both the United States and Kwon’s home country, South Korea, are seeking his extradition, and Kwon is likely to face various penalties in both countries. If extradited to South Korea, Kwon could face up to 40 years in prison for the majority of the crimes he is alleged to have committed.
