Terraform Labs Overview Terraform Labs said filing for Chapter 11 bankruptcy protection will allow it to file an appeal against a securities fraud lawsuit brought by the U.S. Securities and Exchange Commission (SEC).
In a recent presentation, Chris Amani, CEO of Terraform Labs, emphasized the importance of bankruptcy protection for the company’s operations and preserving value for stakeholders, including the Terra community.
“[Bankruptcy protection] is critical to the debtor’s ability to operate as a going concern, maintain value for its creditors and stakeholders (including the Terra community), provide an orderly process for resolving competing claims against it, and file an appeal with the SEC and enforce enforcement actions.”
The company filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on January 21, citing assets and liabilities estimated at between $100 million and $500 million.
Bankruptcy proceedings will begin with a hearing on Wednesday in the United States.
Terraform will face liquidation without bankruptcy protection
Amani explained that if Terraform Labs faced a large monetary judgment, it likely would not be able to satisfy the judgment or pay the bail needed to appeal.
Without Chapter 11 protection, liquidation would be a likely outcome after trial and final judgment.
However, a successful appeal of the SEC’s claims could reduce Terraform Labs’ liabilities and potentially result in positive financial outcomes for the company, its creditors, and society.
The Securities and Exchange Commission charged Terraform Labs and its former CEO, Kwon Do-hyung, with securities fraud in February 2023.
The commission alleged that the team orchestrated a “multi-million dollar crypto-asset securities fraud” while raising significant funds from investors through the offer and sale of securities of interconnected crypto assets, many of which were unrecorded transactions.
Amani reiterated Terraform Labs’ disagreement with the district court’s summary judgment decision, and argued that the cryptocurrency tokens in question are not securities under relevant laws.
As a result, Amani said, the SEC’s enforcement actions fall outside the scope of the SEC’s jurisdiction.
In an earlier ruling, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York upheld the SEC’s claim that Terra offered unregistered securities in a summary judgment issued in December.
Do Kwon awaits extradition
Former Terra CEO Do Kwon, who was arrested in March of the previous year in Montenegro for trying to travel with fake documents, is currently awaiting extradition.
The SEC is pursuing a civil lawsuit against Terraform Labs and Kwon, linking their operations to an alleged $40 billion cryptocurrency scam.
Previously, the SEC agreed to postpone Kwon’s trial until mid-March due to Kwon’s extradition request.
Kwon’s legal team has filed an appeal against the Montenegrin Supreme Court’s decision to confirm extradition requests from both the United States and South Korea.
In addition, Do Kwon’s legal representative in Montenegro, Goran Rudic, made an argument for Kwon’s extradition to South Korea instead of the United States.
Citing the European Extradition Convention, the bilateral agreement between Montenegro and the United States and domestic laws on international legal support, Rudic stated that Kwon, as a Korean citizen, should be returned to South Korea.