Terraform Labs, the company behind the now-defunct stablecoin TerraClassicUSD (USTC), has filed for Chapter 11 bankruptcy, a strategic move aimed at bolstering its legal position against the United States Securities and Exchange Commission (SEC). In a January 30 filing to a Delaware Bankruptcy Court, CEO Chris Amani emphasized that declaring bankruptcy is crucial for the company’s successful appeal in its ongoing case with the SEC. The bankruptcy filing was officially made on January 21.
The appeal process against the SEC typically necessitates Terraform Labs to provide a “supersedeas bond” amounting to 110% of the total judgment. However, the protections offered under Chapter 11 bankruptcy could allow the firm to pursue the appeal without posting this bond. In the court filing, Amani outlined the firm’s intention to challenge the SEC’s authority to prosecute Terraform Labs and its co-founder Do Kwon, arguing that their crypto assets should not be classified as securities and thus fall outside the SEC’s jurisdiction.
Amani disclosed in the filing that Terraform Labs’ treasury currently holds about $28 million in Bitcoin, $7 million in various other cryptocurrencies, and approximately $87 million in Luna tokens. This disclosure comes in the backdrop of the SEC’s civil charges filed in February 2023 against Terraform Labs and Kwon, accusing them of engaging in a “multibillion-dollar crypto asset securities fraud” involving UST and LUNA tokens.
The latest developments follow the SEC’s agreement to delay Kwon’s fraud trial to March 25, a postponement requested by his legal team. This trial is set against the backdrop of the Terra Money ecosystem’s collapse in May 2022 and Kwon’s subsequent arrest in Montenegro in March 2023 for attempting to flee the country with falsified travel documents.
Both the United States and South Korea are seeking Kwon’s extradition. If extradited to South Korea, Kwon could face a 40-year prison sentence for the alleged crimes predominantly committed in his home country. The unfolding legal scenario highlights the complexities and international implications of the Terraform Labs case, which has garnered significant attention in the cryptocurrency and legal communities.
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