In one significant case, Terraform Labs Pte. Ltd., the embattled cryptocurrency company known for its algorithmic stablecoin Terra USD and Luna token, filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on January 21. The collapse of TerraUSD and Luna in May 2022 led to legal issues, including fraud charges from the US Securities and Exchange Commission (SEC).
Terra in the midst of filing for bankruptcy
Terraform Labs’ bankruptcy filing reveals a financial picture marred by difficulties. The company states that estimated assets and liabilities are between $100 million and $500 million. The collapse of TerraUSD and Luna, which destroyed billions of dollars of investor wealth, forms the background of the application. The SEC accused the firm and former CEO Kwon Do-hyeong of fraud in February 2023, marking the beginning of a series of legal battles. After this development, the price of Terra’s LUNC token is decreasing.
The bankruptcy filing aims to address the company’s financial troubles and navigate ongoing legal work. Terraform Labs emphasizes that the move is necessary to execute its business plan amid litigation, including the SEC lawsuit and ongoing litigation in Singapore. The fact that unsecured creditors such as TQ Ventures and Standard Crypto are also included in the application underlines the extent of the financial difficulties.
Terraform Labs CEO made a statement
Terra Labs CEO Chris Amani expressed the necessity of this step to preserve the company’s ability to collaborate with the community on infrastructure, innovative tools and ecosystem support. The legal challenges extend beyond the United States; There is a hearing planned in Singapore against Terraform and Kwon, as well as Kwon’s extradition from Montenegro. The U.S. District Court for the Southern District of New York postponed the SEC case until the end of March at Kwon’s request.
Terraform Labs faces an uphill legal battle as it seeks refuge from Chapter 11 bankruptcy. The voluntary petition filed in Delaware sheds light on the magnitude of the challenges, with TerraUSD’s collapse triggering the possibility of a class-action lawsuit in Singapore and a lawsuit filed by the SEC in the US against the company and its founder Do Kwon.
Filing for bankruptcy not only addresses financial concerns but also aims to navigate complex legal proceedings. Terraform Labs states that it will continue its commercial activities despite the legal turmoil. The company’s founder, Do Kwon, is awaiting extradition from Montenegro after his arrest last year for attempting to travel with forged documents, adding another layer of legal complexity.
LUNA and MIR are classified as securities
Recent developments in late December caused Kwon and Terraform Labs to lose a lawsuit regarding the classification of LUNA and MIR as securities. A US judge ruled against them, marking another setback amid broader legal challenges facing the cryptocurrency firm. The dual fronts of the lawsuits in Singapore and the US underscore the global scale of Terraform Labs’ legal battles.
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