Terraform Labs has filed for Chapter 11 bankruptcy, citing its intention to appeal a lawsuit brought against the company by the U.S. Securities and Exchange Commission (SEC). Terraform Labs CEO Chris Amani stated in a filing with the Delaware Bankruptcy Court that filing for Chapter 11 bankruptcy is crucial for a successful appeal to the SEC. The company, known for creating the now-defunct stablecoin TerraClassicUSD (USTC), initiated bankruptcy proceedings on January 21.
Typically, appeals against the SEC require the appealing entity to post an "in-lieu bond" equivalent to 110% of the total judgment before proceeding to trial. However, Chapter 11 bankruptcy protection provides an avenue for appeal without the necessity of posting a bond. Amani emphasized in the filing that a successful appeal would benefit the company, its creditors, and the broader community by eliminating the largest single claim against Terraform Labs.
Amani stated that the forthcoming appeal will argue that the SEC lacks the necessary authority to charge Terraform Labs or its co-founder Do Kwon. He contends that the company's crypto-assets cannot be classified as securities, and he asserts that the case falls outside the SEC’s jurisdiction. Additionally, Amani disclosed that Terraform Labs’ vaults contain approximately $28 million in Bitcoin, other cryptocurrencies valued at $7 million, and Luna tokens worth about $87 million.
The U.S. Securities and Exchange Commission had filed civil charges against Terraform Labs and Kwon in February 2023, accusing them of orchestrating a "billion-dollar crypto-asset securities fraud" involving the stablecoins UST and LUNA. This recent bankruptcy filing follows the SEC's agreement to postpone Kwon's upcoming fraud trial to March 25, after a request from Kwon's legal team. Kwon's Terra Money ecosystem collapsed in May 2022, and he was arrested in Montenegro in March 2023 for attempting to flee the country with forged travel documents. Extradition requests from the United States and South Korea are pending, with potential severe prison terms in both countries, including a possible 40-year sentence in South Korea, where most of the alleged crimes took place.
