SEC opposes Terraform’s $166M Dentons retainer amid legal dispute
The SEC continues to wage a legal battle with Terraform Labs over the failure of TerraUSD. Funds were allegedly diverted from investors and lenders to an “apparent slush fund” for lawyers. Terraform Labs faces intensified scrutiny as SEC challenges resource allocation.
The US Securities and Exchange Commission (SEC) has raised objections to Terraform Labs' $166 million donation to law firm Dentons.
This development comes amid an ongoing legal battle between Terraform Labs and the SEC following the collapse of TerraUSD and Terraform Labs' subsequent bankruptcy filing in January 2024.
Money laundering crime
The SEC argues that the high receivership payout to Dentons represents a transfer of funds that should be properly allocated to investors and creditors involved in Terraform's bankruptcy proceedings. The commission described the allocation as an attempt by Terraform Labs to set up an “opaque slush fund for its lawyers” rather than an indication of financial obligations to stakeholders.
The SEC's objections extend beyond the receiver's payment to Terraform Dentons for engaging in legal representation and covering litigation costs for its employees. According to the SEC, this move by Terraform Labs could be seen as an effort to circumvent potential future judgments in the SEC lawsuit.
Legal battle and bankruptcy
Terraform Labs and its founder Do Kwon are in a legal battle with the SEC following the May 2022 collapse of TerraUSD and the LUNA token. The fallout from these events resulted in significant losses for investors, prompting Terraform Labs to file. Chapter 11 Bankruptcy Protection in Delaware.
The SEC's stance on reimbursing investors and creditors affected by Terraform's bankruptcy reflects the contentiousness of the legal process. Neither Terraform Labs nor Dentons immediately responded to the SEC's objections, despite requests from CoinDesk for comment.
As the legal dispute between Terraform Labs and the SEC unfolds, the allocation of substantial financial resources to legal representation remains a point of contention. The SEC's objection to Terraform's $166 million lien payment for Dentons underscores the complexity of navigating the TerraUSD collapse and subsequent bankruptcy filing.
Future stakeholders will be closely monitoring developments in the legal proceedings, as the outcome could have major implications for Terraform Labs, its investors, and the broader cryptocurrency ecosystem. As the SEC's investigation intensifies, Terraform Labs will face increasing pressure to resolve allegations surrounding the funding allocation and navigate legal challenges ahead.
