Terraform Labs Pursues Bankruptcy for SEC Suit Appeal

The SEC charged Terraform Labs and its co-founder, Kwon Do-hyeong, with securities fraud in February 2023, accusing them of orchestrating a multibillion-dollar crypto asset securities fraud.

Terraform Labs Pursues Bankruptcy for SEC Suit Appeal
Image / Terraform Labs

Terraform Labs, the blockchain firm facing a lawsuit from the U.S. Securities and Exchange Commission (SEC), has initiated bankruptcy proceedings, citing its potential benefit in appealing the SEC's legal action. The company filed for Chapter 11 bankruptcy on January 21, as confirmed by Terraform Labs CEO Chris Amani.

In a filing to the Delaware Bankruptcy Court, Amani explained that without Chapter 11 protection, Terraform Labs might have to liquidate after the trial and final judgment, given the potential size of the money judgment. The bankruptcy protection would allow Terraform Labs to appeal without posting a "supersedeas bond" of 10% of the total judgment, which is typically required for an appeal. A successful appeal could eliminate the largest claim against the company and benefit Terraform Labs, its creditors, and the community.

The first-day hearing for Terraform Labs' Chapter 11 bankruptcy is scheduled for Wednesday, adding an element of anticipation to the unfolding saga. Observers note that this move introduces a unique legal strategy, positioning the company to address its financial challenges and simultaneously confront the SEC lawsuit.

As Terraform Labs takes this bold step, industry experts are closely watching the developments, considering the potential implications for the broader blockchain and cryptocurrency sector. The outcome of the appeal could set precedent and influence how regulatory bodies approach similar cases in the evolving landscape of digital assets.

The SEC trial against Terraform Labs and Kwon, initially scheduled for late March, will likely see increased attention and scrutiny in light of the company's Chapter 11 bankruptcy filing. The legal battle and subsequent developments will undoubtedly be closely monitored by stakeholders, industry participants, and legal experts alike.

For Terraform Labs, the strategic use of bankruptcy protection as a tool for legal recourse adds a layer of complexity to an already intricate narrative, leaving many to ponder the possible ramifications and the implications for the broader crypto community.