Terraform Labs, the company behind the now-defunct stablecoin TerraClassicUSD (USTC), has filed for Chapter 11 bankruptcy, signalling a strategic move in response to the lawsuit brought forth by the United States Securities and Exchange Commission (SEC).
Terraform Labs Seeks Bankruptcy as Legal Tactic
According to Terraform Labs CEO Chris Amani, the decision to file for bankruptcy is a crucial element in their strategy to appeal the SEC lawsuit. Amani stated in a filing to the Delaware Bankruptcy Court that the Chapter 11 bankruptcy filing is pivotal for a successful appeal, as it could eliminate the need for a substantial bond typically required for such legal actions.
Legal Stand: Challenging SEC Authority
Amani revealed that the upcoming appeal would challenge the SEC’s authority to charge Terraform Labs and its co-founder, Do Kwon. The argument rests on the assertion that Terraform Labs’ crypto assets, including the contentious TerraClassicUSD (UST) and LUNA tokens, cannot be classified as securities, thus falling outside the SEC’s jurisdiction.
Financial Landscape and SEC Charges
Amani, in the filing, disclosed that Terraform Labs’ treasury holds approximately $28 million in Bitcoin, $7 million in various cryptocurrencies, and around $87 million in LUNA tokens. This move comes in response to the SEC’s civil charges against Terraform Labs and Kwon, accusing them of orchestrating a “multibillion-dollar crypto asset securities fraud.”
Legal Proceedings and Kwon’s Extradition
The SEC’s charges against Terraform Labs and Kwon date back to February 2023, and the latest bankruptcy filing comes after the SEC agreed to postpone Kwon’s fraud trial to March 25. Kwon, the co-founder of Terraform Labs, faces potential extradition to South Korea, where he could be sentenced to 40 years in jail for the majority of his alleged crimes.
In this intricate legal battle, Terraform Labs aims to navigate the complexities of both bankruptcy proceedings and the SEC lawsuit, strategically positioning itself for a favourable outcome.
Key Takeaways:
- Bankruptcy as Legal Maneuver: Terraform Labs strategically files for Chapter 11 bankruptcy to fortify its position in appealing the SEC lawsuit.
- Challenge to SEC Authority: The upcoming appeal will contest the SEC’s jurisdiction, arguing that Terraform Labs’ crypto assets are not securities, thus challenging the basis of the charges.
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