Terraform Labs, known for the TerraUSD stablecoin which significantly impacted the crypto market in 2022, has filed for Chapter 11 bankruptcy in the U.S., as per recent court documents.
The Singapore-based company’s filing in the Delaware bankruptcy court shows its assets and liabilities are between $100 million and $500 million.
Despite the bankruptcy proceedings, Terraform Labs has committed to fulfilling its financial obligations to employees and vendors without the need for extra financing. The firm also intends to maintain its expansion in the Web3 sector.
According to the official statement :
“The filing will allow TFL to execute on its business plan while navigating ongoing legal proceedings, including representative litigation pending in Singapore and U.S. litigation involving the Securities and Exchange Commission (SEC).”
Do Kwon, the figure behind the TerraUSD stablecoin and Luna token collapse in 2022, which resulted in a loss of at least $40 billion and exacerbated a $2 trillion downturn in the crypto market, is currently in custody in Montenegro.
His arrest was for traveling with a fake passport, and he faces potential extradition to the US by mid-March on major fraud charges. Court documents reveal Kwon as the 92% shareholder of Terraform Labs, with the remaining share owned by South Korean entrepreneur Daniel Shin. The company is incorporated in Singapore.
“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,” Terraform Labs Chief Executive Officer Chris Amani stated.
Stuart Alderoty, the chief legal officer of Ripple, commented on the Terraform Labs case ruling by Judge Jed Rakoff, which favored the Securities and Exchange Commission (SEC). Although Alderoty did not express a clear stance on the Terraform Labs case, he emphasized three critical aspects of the court’s decision and the widespread implications for the cryptocurrency industry.
Highlighting these key elements, Alderoty underlined the importance of a factual basis in legal decisions, particularly in cases involving complex financial products like digital assets. He noted the significance of applying the Howey Test, a legal framework for determining if a transaction is an investment contract and thus a security. This application marked Terraform Labs’ digital assets, including UST, as unregistered securities, representing a significant victory for the SEC.
Furthermore, Alderoty observed the absence of any criticism or reference to a similar ongoing case involving Ripple in Judge Rakoff’s decision, a notable omission considering the similarities between the two cases related to allegations of unregistered securities in the form of digital assets.
His critique also extended to the SEC’s strategy of regulating cryptocurrencies through litigation, which he characterized as an approach more driven by political power than sound policy. This perspective highlights a growing concern within the cryptocurrency sector about the SEC’s regulation methods.
Alderoty’s comments come at a time when the cryptocurrency industry is facing regulatory uncertainties and prolonged legal battles, suggesting increasing resistance within the industry to the SEC’s legal threats. This resilience is becoming evident despite the SEC’s continued attempts to assert its authority over the rapidly changing digital asset landscape.