Chris Amani, the CEO of Terraform Labs, has said that the company’s decision to file for bankruptcy will help it appeal its lawsuit from the United States Securities and Exchange Commission.
Terraform Labs is set to have its bankruptcy court hearing on Wednesday.
Bankruptcy Will Help Appeal
The current CEO of Terraform Labs, Chris Amani, wrote in a January 30th filing to the Delaware Bankruptcy Court that its Chapter 11 bankruptcy was crucial in helping the firm appeal the lawsuit filed against it by the Securities and Exchange Commission. Terraform Labs had filed for bankruptcy on January 21st.
“The bankruptcy protection] is critical to the Debtor’s ability to operate as a going concern, preserve value for its creditors and stakeholders (including the Terra community), provide an orderly process for resolving competing claims against it, and pursue an appeal of the SEC Enforcement Action.”
Terraform Labs has estimated assets and liabilities between $100 million and $500 million, with the first day of the hearing set to commence on Wednesday in the United States.
Supersedeas Bond
An appeal against the Securities and Exchange Commission would require Terraform Labs to front up a supersedeas bond before the appeal could proceed further. Amani said that because of the size of the potential money judgment, Terraform Labs would not have been able to satisfy such judgment or post the supersedeas bond necessary for the appeal. However, Chapter 11 bankruptcy proceedings could allow Terraform Labs to appeal without posting the bond.
“Without the protection of Chapter 11, the Debtor would likely have to liquidate after the trial and entry of final judgment. A successful appeal would eliminate the single largest claim against the Debtor, thereby benefiting the Debtor, its creditors, and the community more broadly.”
Terraform Labs’ Argument Against The SEC
The Securities and Exchange Commission had charged Terraform Labs and then CEO Kwon-Do-hyeong with securities fraud in February 2023. The SEC alleged that the team at Terraform Labs orchestrated a multi-billion dollar crypto asset securities fraud. At the same time, they raised billions from investors by offering and selling an inter-connected suite of crypto asset securities in unregistered transactions.
Amani disagreed with the SEC’s claim and reiterated the firm’s position, arguing that the SEC does not have the requisite authority to charge Terraform Labs or co-founder Do Kwon.
“The Debtor disagrees with the District Court’s summary judgment decision and believes it should be reversed because the cryptocurrency tokens at issue are not securities under the Acts, and the SEC Enforcement Action, therefore, lies outside the SEC’s jurisdiction.”
This latest filing comes only two weeks after the SEC agreed to postpone Do Kwon’s upcoming fraud trial to March 25th upon receiving a request from his legal team to delay proceedings.
Terraform Labs and the entire Terra ecosystem collapsed in May 2022 following the spectacular collapse of the algorithmic stablecoin TerraUSD and its sister cryptocurrency, Luna. Do Kwon was later arrested in Montenegro after attempting to travel using forged documentation. The United States and South Korea are both seeking his extradition, with the former Terraform Labs CEO facing charges in both countries. If he is extradited to South Korea, Kwon faces 40 years in prison.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
