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JAN 23, 2024

Terraform Labs files for bankruptcy in wake of $40 billion crash

by CoinNess Global

Singapore-based Terraform Labs, the company behind the failed algorithmic stablecoin TerraUSD, has officially filed for Chapter 11 bankruptcy protection in the United States.
It appears that the crypto space is not finished with dealing with the excesses and mismanagement that emerged at the end of the last market cycle. This move from Terraform comes in the wake of a $40 billion cryptocurrency crash and ongoing legal scrutiny, with the firm stating its intention to continue operations and support for the Terra community.

Business plan execution

Terraform Labs was co-founded by Do Kwon, who is currently under investigation for its alleged wrongdoing relative to the failure of TerraUSD. The bankruptcy filing, submitted on Sunday to the Bankruptcy Court for the District of Delaware, aims to facilitate the company’s business plan execution while navigating ongoing legal proceedings, including representative litigation in Singapore and the United States involving the Securities and Exchange Commission (SEC).
In a statement, Chris Amani, CEO of Terraform Labs, commented on the decision, stating:
“The Terra community and ecosystem have shown unprecedented resilience in the face of adversity, and this action is necessary to allow us to continue working toward our collective goals while resolving the legal challenges that remain outstanding.”
Amani reassured stakeholders that the decision ensures the company can maintain its commitment to working with the community on infrastructure, innovative tools, products and other ecosystem support. Amani became CEO of the company in July of last year, having been acting as Terraform’s COO prior to that.
He acknowledged the challenges faced and expressed optimism about overcoming them, highlighting the resilience of the ecosystem after previous hurdles.

Liabilities and assets in $100M to $500M range

The company emphasized that the Chapter 11 filing is designed to allow it to meet all financial obligations to employees and vendors without requiring additional financing. The estimated liabilities and assets fall within the range of $100 million to $500 million, as indicated in the filing.
The SEC has initiated a civil trial against Terraform Labs and Do Kwon, accusing them of orchestrating a $40 billion cryptocurrency fraud through the TerraUSD algorithmic stablecoin and its sister token Luna.
The SEC alleges that Terraform Labs and Kwon raised billions of dollars from investors through unregistered transactions, leading to the collapse of TerraUSD and Luna in May 2022. Both the SEC and Terraform have unsuccessfully filed for summary judgment in the case.

Far-reaching consequences

The crash had far-reaching consequences, impacting several crypto firms, including Singaporean crypto hedge fund Three Arrows Capital, Singaporean crypto lender Hodlnaut, Voyager Digital and Celsius Network.
Do Kwon, a South Korean national, faces additional criminal charges in the United States related to fraud and market manipulation. His arrest in Montenegro in March 2023 and pending extradition requests from South Korea and the United States underscore the global legal challenges confronting him.
The U.S. District Court for the Southern District of New York has scheduled the SEC trial against Terraform Labs and Kwon for late March, accommodating Kwon’s extradition process. Meanwhile, in South Korea, Terraform Labs co-founder Daniel Shin has denied wrongdoing in the collapse as part of separate proceedings taken against him.
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