Terraform Labs Seeks Chapter 11 Amid SEC Legal Battle

The digital asset firm Terraform Labs sought Chapter 11 bankruptcy defense on Tuesday in the Delaware U.S. Bankruptcy Court. The company said the bankruptcy filing would let it keep operating and follow through on an appeal opposing the U.S. Securities and Exchange Commission’s securities fraud case against Terraform Labs.

In the bankruptcy filing, Terraform Labs CEO Chris Amani wrote that the Chapter 11 protection is “critical to the Debtor’s ability to operate as a going concern, preserve value for its creditors and stakeholders (including the Terra LUNA community), provide an orderly process for resolving competing claims against it, and pursue an appeal of the SEC Enforcement Action.” Terraform Labs listed estimated assets and liabilities between $100 million and $500 million. The first-day hearing for Terraform’s bankruptcy case is scheduled for Wednesday in Delaware.

Moreover, Amani said Terraform Labs likely couldn’t pay the massive judgment in the SEC case or post an appeal bond. Bankruptcy protection could help Terraform appeal and possibly reduce liabilities, benefiting the company, creditors, and crypto community.

SEC Charges Terraform Labs & Ex-CEO Kwon With Fraud

The Securities and Exchange Commission filed charges against a digital asset firm and its past chief executive, Do Kwon, earlier this year, accusing them of deceiving investors and illegally offering crypto assets without proper registration after amassing billions in funding.

However, Amani contends the cryptocurrencies in question do not qualify as securities under the law, meaning the SEC would not have authority. While Judge Jed Rakoff agreed with the SEC’s position in a summary ruling in December, Terraform intends to challenge the decision on appeal.

Furthermore, Terraform Labs developed the stablecoin TerraUSD and its paired token Luna, which crashed in value last May. Two months prior, law enforcement in Montenegro apprehended the former head of a digital asset firm, Kwon, on charges related to travel under falsified paperwork. Kwon continues to await extradition to America, even as he petitioned to delay the Securities and Exchange Commission’s fraud proceedings against him until late March.

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