Terraform Labs, the company behind the Terra (LUNA) ecosystem, has received approval from a US bankruptcy court to wind down its operations.
This decision comes after the company settled with the US Securities and Exchange Commission (SEC) over fraud charges related to the collapse of its TerraUSD stablecoin and LUNA native token, which wiped out $40 billion in value in 2022.
SEC Might Face Slim Returns in Terraform Labs Settlement
According to Reuters’ report, US Bankruptcy Judge Brendan Shannon approved Terraform’s bankruptcy plan in Wilmington, Delaware. Shannon stated that it was a “welcome alternative” to prolonged litigation.
The SEC initially sought $4.47 billion from its settlement with Terraform. However, the report suggested that the agency will likely collect little to nothing from the settlement. This is due to the agreement’s priority to compensate crypto purchasers and stakeholders affected by the 2022 collapse.
Read more: What Is Terra (LUNA)?
Terraform Labs filed for bankruptcy in January 2024. The firm did so after it became apparent that it would not be able to recover from the TerraUSD and LUNA collapse. The company’s bankruptcy wind-down plan aims to pay affected investors between $184.5 million and $442.2 million, though the final payout remains uncertain.
“The company said it is currently ‘impossible to estimate’ the total value of crypto losses that will be eligible to be paid during the liquidation,” the report revealed.
These figures pale in comparison to the total losses caused by the collapse. Therefore, it also left many stakeholders dissatisfied with the proposed repayment plan.
The SEC had charged Terraform and its founder, Do Kwon, with misleading investors about TerraUSD’s stability. They falsely promoted the token as one that would maintain a $1 value.
The court case revealed that Terraform also falsely claimed its blockchain’s use in a popular South Korean mobile payment application. In April, a jury found both Terraform and Kwon liable for civil fraud, and the company agreed to settle before further damages could be determined.
This development comes after liquidators of hedge fund Three Arrows Capital (3AC) filed a $1.3 billion lawsuit against Terraform Labs in August. The lawsuit accuses Terraform of market manipulation, claiming the company artificially inflated the price of LUNA and TerraUSD. Additionally, the liquidators alleged that Terraform encouraged 3AC to make large investments, although they knew that they would eventually result in losses.
At its peak in 2022, 3AC held $462 million worth of LUNA. Yet, this figure dropped to just over $2,700 following the market crash. The lawsuit and Terraform’s bankruptcy wind-down further demonstrate the far-reaching financial damage caused by this case.
Read more: Top Crypto Bankruptcies: What You Need To Know
While Terraform Labs navigates bankruptcy, Do Kwon remains entangled in legal battles. He is currently awaiting extradition rulings in Montenegro, where he was arrested in 2022.
Several countries, including the US and South Korea, have filed requests for Kwon’s extradition. These jurisdictions cited his involvement in the fraud and his role in the collapse of the Terra ecosystem.
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