Terraform Labs said the bankruptcy will help appeal the SEC’s case.
Terraform Labs said the decision to file for bankruptcy will help it pursue an appeal of the charges it faces from the United States Securities and Exchange Commission.
In a Jan. 30 filing in Delaware bankruptcy court, Terraform Labs CEO Chris Amani wrote that Chapter 11 bankruptcy is critical to successfully appealing the case with the SEC. The firm — which created the now-defunct stablecoin TerraClassicUSD (USTC) — filed for bankruptcy on January 21.
Appealing to the SEC requires Terraform Labs to file a supersedeas bond of 110% of the total judgment before it can proceed. However, Chapter 11 bankruptcy bonds allow the organization to file an appeal without having to post the bond.
“A successful appeal removes the biggest claim against the debtor, thereby benefiting the debtor, his creditors and society at large.”
In the filing, Amani wrote that the company's upcoming appeal argues that the SEC lacks the necessary jurisdiction to charge the company or its co-founder, Do Kwon.
Terraform Labs argued that crypto assets cannot be called securities and said the matter is outside the SEC's jurisdiction.
Amani also said that Terraform Labs' treasury holds $28 million in Bitcoin (BTC), $7 million in “various” other cryptocurrencies, and approximately $87 million in Luna (LUNA) tokens.
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In February 2023, the SEC filed civil charges against Terraform Labs and Kwon, accusing both of orchestrating a “multibillion-dollar crypto-asset securities fraud” involving the tokens formerly known as UST and LUNA.
The latest filing comes two weeks after the SEC agreed to postpone Kwon's fraud trial to March 25 after accepting a request from his legal team to delay the trial.
The Kwon Terra money ecosystem collapsed in May 2022. Shortly after the operation, he was arrested in 2010 after attempting to flee the country with a false travel document. His whereabouts remained unknown until his arrest in Montenegro in March 2023.
The US and Kwon's home country of South Korea are seeking extradition, and Kwon faces multiple convictions in both countries.
If extradited to South Korea, Kwon could face up to 40 years in prison for most of the crimes.
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