YEREVAN (CoinChapter.com) — A U.S. bankruptcy judge has granted Terraform Labs approval to begin winding down its operations. Subsequently, this decision follows the company’s legal settlement with the U.S. Securities and Exchange Commission (SEC).
Bankruptcy Court Allows Terraform Labs to Wind Down
Terraform Labs, known for the Terra USD collapse, has received approval to wind down. As part of its Chapter 11 bankruptcy, the firm will distribute between $184.5 million and $442.2 million to stakeholders.
Following the Terra USD collapse in 2022, which triggered widespread financial losses in the cryptocurrency sector, Terraform Labs is now actively taking steps to settle its remaining obligations and close down operations.
Terraform Labs Settles With the SEC Over Terra USD Collapse
In February 2023, the SEC filed charges against Terraform Labs and its co-founder, Do Kwon, accusing them of misleading investors. These charges stemmed from the collapse of Terra USD, an algorithmic stablecoin developed by the company. Consequently, the SEC claimed that the firm defrauded investors, which led to legal disputes over the fines.
Terraform initially argued for a $1 million fine, but the SEC demanded a higher penalty. In June 2024, the firm agreed to a $4.7 billion settlement. The payment includes $3.58 billion in disgorgement and $420 million in civil penalties. As part of the settlement, Do Kwon is barred from holding any leadership position in public companies.
Commission’s Fines to Be Paid After Creditors
Notably, under the terms of the settlement, the SEC will only receive its claim after creditors and investors affected by the Terra USD collapse are fully compensated. In June 2024, the SEC further clarified this process, emphasizing that this sequence prioritizes those most impacted by the collapse.
“Under the liquidation terms of the Chapter 11 Plan that Terraform is required to propose, the SEC will recover on its claim after harmed investors and other general unsecured creditors recover in full.”
Above all, the winding down process will prioritize creditors and investors impacted by the Terra USD collapse, with the SEC receiving payment afterward.
The approval to wind down Terraform Labs and settle its obligations marks a significant point in the company’s process of closing down.
The post Terraform Labs Bankruptcy: Judge Approves Wind Down After SEC Settlement appeared first on CoinChapter.
