Terraform Labs filed for bankruptcy to protect against potential SEC money judgment News ▸ Terra ▸ Bankruptcy
Terraform Labs filed for bankruptcy to protect against potential SEC money judgment
Terraform Labs CEO explained that the firm's current focus is not profit generation.
2 min read
Updated: Jan. 31, 2024 at 10:03 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Terraform Labs, the brains behind the Terra blockchain network, opted for bankruptcy protection as a strategic move against any “potential money judgment” that could be enforced by the U.S. Securities and Exchange Commission (SEC).
In a Jan. 30 court filing, Terraform Labs CEO Chris Amani explained that the company might need to close its business to meet the monetary penalties that could be imposed in favor of the financial regulator. This, in turn, would deprive the crypto company of its right to appeal and could have severe repercussions for holders of Terra-related tokens like Luna.
“Without the protection of chapter 11, the Debtor would likely have to liquidate after the trial and entry of final judgment, forfeiting its right to an appeal and causing disastrous consequences for the Debtor’s business, its approximately 60 employees, its creditors, and the hundreds of thousands of holders of Luna that depend on the Debtor to maintain the Terra Blockchain—the same token holders the SEC purports to protect,” Armani stated.
Last December, the SEC secured a favorable judgment from Judge Jed Rakoff, who ruled that Terraform Labs and its founder, Do Kwon, violated the Securities Act by offering and selling various securities tokens, including the failed algorithmic UST stablecoin, LUNA, wLUNA, and MIR.
However, the company has maintained that it disagrees with this ruling and revealed that it intends to file an appeal after the District Court enters its final judgment.
So, the Chapter 11 bankruptcy filing offers crucial legal protection, enabling Terraform Labs to potentially restructure its finances, continue operations, appeal the decision, and strive for long-term success.
Additionally, Amani emphasized that the company’s current focus is not profit generation. He clarified that Terraform Labs has reinvested all earnings into the business and the Terra blockchain ecosystem to foster growth.
“In fact, the Debtor does not currently operate to gain profits; all revenue earned is expected to be reinvested in the business and the Terra blockchain ecosystem,” Amani stated.
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Oluwapelumi Adejumo
Oluwapelumi values Bitcoin's potential. He imparts insights on a range of topics like DeFi, hacks, mining and culture, underlining transformative power.
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Terra is a blockchain protocol that uses fiat-pegged stablecoins to power price-stable global payments systems.
TerraClassicUSD
$0.02113
TerraUSD (UST) is a decentralized and algorithmic stablecoin on the Terra blockchain.
Terraform Labs
Terraform Labs is a startup that created Terra, a blockchain protocol and payment platform used for algorithmic stablecoins.
Do Kwon began his professional journey as an engineer, contributing to tech giants Apple and Microsoft.
Chris Amani is the new CEO of Terraform Labs, Terra and Luna creator.