Terraform Labs gets court approval for a bankruptcy plan after settling SEC fraud claims involving $40 billion in investor losses.
Bankruptcy Approval and SEC Settlement
Terraform Labs has received court approval to wind down its operations in bankruptcy after settling a lawsuit with the U.S. Securities and Exchange Commission (SEC). The company was accused of defrauding cryptocurrency investors, leading to losses of around $40 billion from the collapse of the TerraUSD and Luna tokens in 2022. U.S. Bankruptcy Judge Brendan Shannon endorsed Terraform’s plan as a “welcome alternative” to prolonged litigation over these investor losses. Terraform filed for bankruptcy in January and agreed to a $4.47 billion settlement with the SEC following a jury’s finding of liability for fraud.
SEC Claims and Investor Losses
The SEC accused Terraform and its founder, Do Kwon, of misleading investors about the stability of TerraUSD, a stablecoin meant to maintain a constant $1 price. Kwon falsely claimed that Terraform’s blockchain was being used in a popular Korean mobile payment app. This misrepresentation resulted in significant financial damage when TerraUSD lost its dollar peg, triggering the collapse of both TerraUSD and the closely linked Luna token in May 2022.
Legal Challenges Continue for Do Kwon
Do Kwon and Terraform Labs were found liable for civil fraud charges during a trial. Before a second phase to determine damages could begin, they opted to settle with the SEC. Kwon also faces related criminal charges in the U.S. and South Korea, although he denies any wrongdoing.
Impact of the 2022 Token Collapse
The failure of TerraUSD and Luna caused a broader market crash, leading to numerous bankruptcies within the crypto industry. The instability of these tokens resulted in massive investor losses and a series of legal and financial repercussions for Terraform Labs.
Future Payouts and SEC Settlement
While Terraform’s settlement with the SEC is set at $4.47 billion, the regulatory body will only receive funds after claims from other parties are settled. This agreement highlights the complexities involved in recovering investor losses in a volatile and rapidly evolving market.
Uncertain Path Ahead
As Terraform navigates its bankruptcy liquidation, the company acknowledges the difficulty in estimating the total value of claims. The final payouts to investors and stakeholders will depend on the successful liquidation of remaining assets and the resolution of ongoing legal disputes.
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