Terraform Labs Claims Bankruptcy Could Help in SEC Lawsuit

Terraform Labs CEO pointed out that the assets belonging to the users of the firm cannot be called securities by the SEC.

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Terraform Labs, the firm behind the collapse of the UST and LUNA tokens, claimed in a recent statement that its bankruptcy could help in the ongoing lawsuit filed against the firm by the United States Securities and Exchange Commission (SEC). 

The blockchain-focused firm founded by disgraced crypto entrepreneur Do Kwon stated in a filing submitted to a Delaware Bankruptcy Court on Tuesday that its Chapter 11 bankruptcy was critical to successfully appealing its case with the SEC.

As reported earlier, the firm filed for bankruptcy on January 21, stating that the estimated assets and liabilities of the firm range from $100 to $500 million.

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Terraform Labs CEO Chimes In

Terraform Labs CEO Chris Amani highlighted that an appeal to the SEC lawsuit would generally require the firm to front up a “supersedeas bond” of 110% of the total judgment before it could proceed. 

However, the bankruptcy filing would allow the firm to lodge an appeal without needing to post the bond.

“A successful appeal would eliminate the single largest claim against the Debtor, thereby benefiting the Debtor, its creditors, and the community more broadly,” read the filing. 

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SEC Lacks Authority

The Terraform Labs executive further wrote that in the upcoming appeal, the firm will argue that the SEC does not have the requisite authority to charge the firm or its co-founder, Do Kwon. 

Amani pointed out that the assets belonging to the users of the firm cannot be called securities and claimed the case falls outside the SEC’s jurisdiction.

Bankruptcy of Terraform Labs

According to Amani, Terraform Labs has approximately $28 million in Bitcoin (BTC), $7 million in “various” other cryptocurrencies, and roughly $87 million in Luna (LUNA) tokens.

Additionally, the disgraced entrepreneur withdrew millions from the firm as South Korean prosecutors try to freeze Do Kwon’s and other parties’ assets. Further, he also withdrew 2.8 billion won ($2.15 million) worth of digital assets before being granted bail in a Montenegro court.

SEC Lawsuit

The SEC filed a lawsuit against Terraform Labs and Kwon for misleading investors, adding that the two sold crypto assets as unregistered securities between 2018 and 2022. The regulator also claimed that Kwon committed a fraudulent scheme through his firm that led to investors losing about $40 billion of their LUNA and UST holdings.

On the other hand, the firm sought to throw out the lawsuit, arguing that the US securities regulations addressed in the case do not apply to its foreign-developed standards. 

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