Bankrupt Terraform Labs Can Afford ‘Do-or-die’ SEC Appeal

By Mark Hunter

20 hours agoWed Jan 31 2024 09:25:01

Bankrupt-Terraform-Labs-Can-Afford-_Do-or-die_-SEC-Appeal

Reading Time: 2 minutes

  • Terraform Labs, which recently filed for Chapter 11 bankruptcy, has said it can fund a ‘do or die’ appeal in its case against the SEC
  • The company received a ruling against it in December, but it can finance an appeal
  • Co-founder Do Kwon is scheduled to face the SEC in court in March regarding his role in the company’s collapse

Terraform Labs has said it has enough money to lodge a ‘do or die’ appeal in the securities fraud case brought by the US Securities & Exchange Commission (SEC). The company, which recently filed for Chapter 11 bankruptcy, said in a recent filing that it has enough cash to fund an appeal in the case, having received a ruling against it last December. However, if Terraform Labs loses that appeal or if it is stayed for any reason it will have to wind up its operations. The company’s co-founder Do Kwon is due to face the SEC in court over his role in its collapse in March.

Terraform Labs Running Out of Funds

Terraform Labs was determined in December to have contravened US securities laws by not registering two digital currencies, UST and LUNA, as securities. The implosion of the Terra/LUNA ecosystem lost holders some $40 million and plunged the crypto markets into turmoil in 2022.

The company has been fighting to keep afloat ever since, trying to rebrand itself and forget its troublesome history, but the costs associated with the SEC’s case against it forced it to enter bankruptcy last week.  Chris Amani, Terraform’s head of company operations, emphasized concerns that Terraform Labs is running out of options in a court filing, stating that the judgment’s size might surpass the company’s assets (Terraform Labs has disclosed access to approximately $28 million in bitcoins, $7 million in various cryptocurrencies, and around $87 million in its proprietary token, LUNA).

Terraform Tries to Echo Ripple Success

The company’s intended appeal is grounded in the argument that the SEC lacks authority over Terraform Labs because its cryptocurrency tokens do not qualify as securities, the same battle that Ripple won last year. Ordinarily, pursuing such an appeal would require posting a bond equivalent to 110% of the total judgment value, but Terraform Labs is asserting that filing for Chapter 11 bankruptcy would allow it to appeal without needing to do so.

Amani emphasized the critical role of Chapter 11 protection in the filing, suggesting that without it, the company might be forced to liquidate after the trial.

Co-founder Do Kwon faces his own separate battle with the SEC over his role in the collapse of the enterprise, a trial that will start in March after he is extradited to the US from Montenegro following his short stay in prison there for using a false passport.