2024-09-20
Terraform Labs has received court
approval to wind down its operations as part of its bankruptcy proceedings.
This decision follows a settlement with the U.S. Securities and Exchange
Commission (SEC), which accused the company of defrauding investors who lost an
estimated $40 billion when the TerraUSD and Luna tokens collapsed in 2022. The
bankruptcy plan, approved by Judge Brendan Shannon, is seen as a preferable
alternative to prolonged litigation.
Previously, Terraform Labs, the company
that developed the Terra blockchain, LUNA and TerraUSD cryptocurrencies,
reached a settlement with the U.S. Securities and Exchange Commission (SEC).
Terraform Labs and Do Kwon agreed to
pay $4.47 billion in disgorgement, prejudgment interest, and civil penalties.
This settlement comes after the SEC
charged Terraform Labs and its CEO Do Kwon with orchestrating a multi-billion
dollars crypto asset securities fraud.
The charges are related to their
algorithmic stablecoin and other crypto asset securities, which include
“mAssets,” security-based swaps designed to mirror the price of U.S. company
stocks.
Terraform Labs received court approval
to wind down operations
On September 17, 2024, Terraform Labs
received court approval to wind down its operations as part of its bankruptcy
proceedings, following a settlement with the U.S. Securities and Exchange
Commission (SEC). The company faced accusations of defrauding cryptocurrency
investors who lost approximately $40 billion when the TerraUSD and Luna tokens
collapsed in 2022.
U.S. Bankruptcy Judge Brendan Shannon
approved Terraform's bankruptcy plan during a hearing in Wilmington, Delaware,
calling it a "welcome alternative" to prolonged litigation over the
investor losses. The plan comes after Terraform filed for bankruptcy in January
2024.
Terraform agreed to a $4.47 billion
settlement with the SEC, which had accused the company and its founder, Do
Kwon, of misleading investors about the stability of TerraUSD. The SEC alleged
that Terraform falsely promoted TerraUSD as a stablecoin, designed to maintain
a consistent $1 price, and claimed that its blockchain was widely used in a
popular Korean mobile payment app.
The settlement follows an April jury
ruling in Manhattan that found Terraform liable for civil fraud. However, the
SEC is unlikely to collect much of the settlement sum, as it agreed to receive
payment only after crypto loss claims are resolved as part of Terraform's
bankruptcy wind-down. Terraform stated it is currently "impossible to
estimate" the total value of losses eligible for payment.
As part of the liquidation process, the
company has estimated that it will be able to pay between $184.5 million and
$442.2 million to crypto purchasers and other stakeholders during the
liquidation process. However, the total value of crypto losses eligible for
payment remains uncertain.
Do Kwon and Terraform opted to settle
the SEC charges before a second trial phase, which would have determined the
financial damages. Kwon is also facing related criminal charges in both the
U.S. and South Korea, but has denied any wrongdoing.
The collapse of TerraUSD and Luna in
May 2022, after TerraUSD lost its peg to the U.S. dollar, triggered a massive
market crash that reverberated across the cryptocurrency industry, leading to a
series of bankruptcies.
