Terraform Labs, the firm behind the cryptocurrencies TerraUSD (UST) and Luna, has filed for Chapter 11 bankruptcy in Delaware. Chris Amani, the CEO, emphasized the importance of the bankruptcy filing for the company’s ability to achieve its objectives and navigate through these complex legal issues.
Terraform’s move is a strategic response to ongoing legal issues, including a lawsuit with the U.S. Securities and Exchange Commission (SEC) and other legal challenges in Singapore. The bankruptcy documents reveal that Terraform Labs has assets and liabilities between $100 million and $500 million, and it has between 100 and 199 creditors.
The bankruptcy filing also serves a tactical purpose in the company’s legal strategy. Ordinarily, to appeal against the SEC, Terraform Labs would be required to secure a “supersedeas bond” amounting to 110% of the total judgment amount. However, the protections offered under Chapter 11 might allow the company to proceed with the appeal without this requirement.
In their appeal, Terraform Labs plans to argue that the SEC does not have the authority to charge the company or its co-founder, Do Kwon, claiming that their crypto assets should not be classified as securities and thus are outside the SEC’s jurisdiction. A successful appeal could significantly reduce the company’s largest claim, benefiting Terraform Labs, its creditors, and the broader community.
Despite the challenges of bankruptcy, Terraform Labs remains focused on growth in the Web3 sector. It has recently made significant moves, such as acquiring Pulsar Finance and launching Station v3, a new cryptocurrency wallet.
Following the SEC’s decision to postpone a civil trial against Terraform Labs and Do Kwon to March 25, Kwon, who owns a 92% stake in the company, is currently in custody in Montenegro. He was arrested for using false travel documents and is awaiting potential extradition to the U.S. or South Korea, as both countries seek to prosecute him for his role in the collapse of TerraUSD and LUNA.
Founded in 2018, Terraform Labs experienced a severe downturn in May 2022, losing over $40 billion in market value. This led to the collapse of TerraUSD and Luna, causing significant disruption in the cryptocurrency market. Additionally, a recent U.S. court ruling classified LUNA and MIR as securities, adding another layer to the company’s legal challenges.