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Terraform Labs

Terraform Labs’ Fraud Case: Bankruptcy Plan Granted After $4.47 Billion SEC Settlement

Ronaldo Marquez
by Ronaldo Marquez
1 year ago
·
Posted in Crypto News
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

Terraform Labs has received court approval to wind down its operations in bankruptcy, following a significant settlement with the US Securities and Exchange Commission (SEC) just four months ago. 

This decision comes after the company faced accusations of defrauding investors during the catastrophic collapse of its TerraUSD and Luna tokens in 2022, resulting in estimated losses of $40 billion.

US Judge Approves Terraform Labs Bankruptcy Plan

First reported by Reuters, US Bankruptcy Judge Brendan Shannon approved Terraform Labs’ bankruptcy plan at a hearing on Thursday September 19, calling it a “welcome alternative” to protracted litigation over investor losses. 

Related Reading: Crypto Founder Identifies The Best And Worst Time To Be In Bitcoin

Terraform Labs, which filed for bankruptcy in January, agreed to a $4.47 billion settlement with the SEC after a Manhattan jury found the company liable for fraud in April following the lawsuit filed by the regulator in February 2023.

One notable aspect of the settlement is that the SEC will receive little, if any, of the settlement amount until Terraform satisfies claims from crypto investors as part of its bankruptcy process. 

The company indicated that it is currently “impossible to estimate” the total value of crypto losses eligible for compensation during the liquidation phase.

Terraform Labs has projected that it will be able to distribute between $184.5 million and $442.2 million to affected crypto purchasers and other stakeholders as part of its bankruptcy liquidation. 

The SEC’s allegations centered around Terraform and its founder, Do Kwon, who were accused of misleading investors regarding the stability of TerraUSD, a stablecoin intended to maintain a consistent $1 value. 

Additionally, the SEC claimed that Terraform falsely stated its blockchain was utilized in a popular mobile payment application in South Korea.

Kwon Faces Criminal Charges In US and South Korea

Following the civil fraud trial, a jury found Kwon and Terraform liable for their actions, prompting the company to settle with the SEC before a second phase of the trial could determine the extent of damages. 

Kwon is also facing related criminal charges in both the United States and South Korea, although he has consistently denied any wrongdoing. Kwon is expected to be extradited to South Korea. 

However, the Supreme Court of Montenegro has postponed the extradition of Terraform Labs founder Do Kwon to his home country of South Korea, pending a review of the legality of the previous court decisions. 

Related Reading: Hacked X Accounts Power Massive Crypto Scam, Blockchain Sleuth Warns

The downfall of TerraUSD and its associated token, Luna, began in May 2022 when TerraUSD failed to maintain its pegged value to the dollar. This failure triggered a market crash that not only affected Terraform but also caused a ripple effect, leading to multiple bankruptcies across the cryptocurrency sector.

Terraform Labs
The daily chart shows LUNC’s price trending upwards. Source: LUNCUSDT on TradingView.com

At the time of writing, the blockchain’s native token, now called Luna Classic (LUNC), is trading at $0.000086, up 6% in the last 24 hours as the broader market rebounds. 

Featured image from DALL-E, chart from TradingView.com

Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Ronaldo Marquez

Ronaldo Marquez

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Ronaldo is a seasoned crypto enthusiast with over four years of experience in the field. He is passionate about exploring the vast and dynamic world of decentralized finance (DeFi) and its practical applications for achieving economic sovereignty. Ronaldo is constantly seeking to expand his knowledge and expertise in the DeFi space, as he believes it holds tremendous potential for transforming the traditional financial landscape.

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