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On Sept. 19, Terraform Labs, the company behind the Terra blockchain protocol, gained court approval to wind down its operations as part of its bankruptcy proceedings.
Terraform Labs Exits Chapter 11 Bankruptcy
During a pivotal hearing on Thursday, U.S. Bankruptcy Judge Brendan Shannon approved the firm’s plan to exit Chapter 11 bankruptcy in Wilmington, Delaware. This decision marks a critical point in Terraform Labs’ ongoing legal challenges and financial troubles.
Settlement with the SEC
Terraform Labs also reached a settlement with the U.S. Securities and Exchange Commission (SEC). Judge Shannon described the resolution as a “welcome alternative” to prolonged litigation, following the company’s significant financial losses and the impact on investors.
The company originally filed for Chapter 11 bankruptcy protection in January. In June, Terraform Labs settled with the SEC for $4.47 billion, after the federal agency had initially sought $5.3 billion in April.
Distribution to Creditors
With the bankruptcy wind-down, Terraform Labs is expected to distribute between $184.5 million and $442.2 million to its creditors and stakeholders.
Terraform Labs’ current CEO, Chris Amani, revealed in June that the company had always intended to dissolve, and it is now in the final stages of closing its operations.
“With the proposed settlement now public, I can finally share some details about what is next for TFL.”
The company acknowledged that estimating the total value of cryptocurrency losses to be repaid during the liquidation process is “impossible.” The figures released are only approximations, with the exact amounts remaining unclear. While Terraform Labs will settle with its creditors first, the U.S. Securities and Exchange Commission (SEC) will only begin collecting on its settlement once those payments have been made.
Accusations and Legal Troubles
The SEC had accused Terraform Labs and its co-founder, Do Kwon, of defrauding investors through a multi-billion dollar cryptocurrency scheme. The collapse of Terraform’s TerraUSD and Luna stablecoins wiped out roughly $60 billion in investor assets.
Following the crash, Kwon evaded authorities for months, moving between various locations in Europe and Asia. He was eventually arrested in Montenegro last spring and has since been held in custody as he awaits possible extradition to the United States or South Korea. Montenegro’s Supreme Court is expected to rule this month on whether there were legal violations in the extradition process.
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