Terraform CEO Challenges SEC Authority: Asserting Do Kwon and Company Should Not Face Charges

Author : Dency Emily | Published On : 01 Feb 2024

Terraform Labs, the brains behind TerraUSD (UST) and Luna, has initiated a Chapter 11 bankruptcy filing in Delaware as part of a strategic move to address ongoing legal challenges, notably a lawsuit with the U.S. Securities and Exchange Commission (SEC) and other legal entanglements in Singapore. CEO Chris Amani emphasizes the crucial role this bankruptcy filing plays in steering the company through its objectives amid complex legal intricacies.

The bankruptcy documents disclose Terraform Labs' assets and liabilities ranging between $100 million and $500 million, with 100 to 199 creditors in the mix. Beyond its financial restructuring, the Chapter 11 filing serves a tactical purpose in Terraform Labs' legal strategy. Typically, an appeal against the SEC would demand a "supersedeas bond," equivalent to 110% of the total judgment amount. However, the protective measures afforded by Chapter 11 could potentially exempt the company from this requirement.

Terraform Labs plans to argue in its appeal that the SEC lacks the authority to charge the company or co-founder Do Kwon. Their contention revolves around the classification of their crypto assets as non-securities, positioning them outside the SEC's regulatory jurisdiction. A favorable outcome in the appeal could substantially reduce the company's primary claim, benefiting Terraform Labs, its creditors, and the wider community.

Despite grappling with the challenges of bankruptcy, Terraform Labs remains steadfast in its commitment to growth within the Web3 sector. Recent strategic moves, including the acquisition of Pulsar Finance and the launch of Station v3, a new cryptocurrency wallet, underscore the company's determination to navigate complexities and press forward.

The postponement of the SEC's civil trial against Terraform Labs and Do Kwon to March 25 has provided some breathing room. However, Kwon's current custody situation in Montenegro, where he faces potential extradition to the U.S. or South Korea, adds another layer of complexity. His arrest for using false travel documents follows the collapse of TerraUSD and Luna, leading to significant disruptions in the cryptocurrency market.

Founded in 2018, Terraform Labs experienced a notable downturn in May 2022, witnessing a staggering loss of over $40 billion in market value. This downturn led to the collapse of TerraUSD and Luna, contributing to the company's legal challenges. A recent U.S. court ruling further complicates matters, classifying LUNA and MIR as securities, intensifying Terraform Labs' legal battles.