Terraform Labs’ CEO, Chris Amani, stated in a recent filing to a Delaware Bankruptcy Court that the company’s decision to declare bankruptcy is strategic in aiding its appeal against the lawsuit filed by the United States Securities and Exchange Commission (SEC). Amani emphasised that Chapter 11 bankruptcy is crucial for the successful pursuit of their case against the SEC, which stems from the creation of the now-defunct stablecoin TerraClassicUSD (USTC), with the bankruptcy filing made on Jan. 21.
Typically, challenging the SEC’s ruling would necessitate Terraform Labs to provide a “supersedeas bond” equal to 110% of the total judgement upfront. However, Chapter 11 bankruptcy protections might enable the company to proceed with the appeal without having to furnish the bond, potentially alleviating a significant financial burden.
Amani highlighted that a favourable outcome in the appeal would significantly reduce the debtor’s liabilities, benefiting not only Terraform Labs and its creditors but also the wider community. The upcoming appeal will contest the SEC’s jurisdiction to charge the company and its co-founder, Do Kwon, arguing that their crypto assets should not be classified as securities.
Additionally, Amani disclosed that Terraform Labs holds approximately $28 million in Bitcoin, $7 million in various other cryptocurrencies, and around $87 million in Luna tokens within its treasury.
The SEC had filed civil charges against Terraform Labs and Kwon in February 2023, alleging their involvement in a “multibillion-dollar crypto asset securities fraud” related to the UST and LUNA tokens. This recent filing follows a decision by the SEC to postpone Kwon’s fraud trial to March 25, accommodating a request from his legal team for a delay.
Kwon’s Terra Money ecosystem collapsed in May 2022, leading to his subsequent arrest in Montenegro in March 2023 for attempting to flee the country using falsified travel documents. Both the U.S. and South Korea, Kwon’s home country, are seeking his extradition, with potential severe penalties awaiting him in both jurisdictions, including a possible 40-year jail sentence in South Korea, where most of the alleged crimes occurred.