Terraform Labs filed for bankruptcy to protect against potential SEC money judgment

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.