Terraform Labs cleared for wind-down amid bankruptcy by US Court

Terraform Labs, the company behind the Terra blockchain protocol, received court approval to wind down its operations as part of the bankruptcy process on September 19.

In a key hearing Thursday, U.S. Bankruptcy Judge Brendan Shannon approved the firm’s plan to emerge from Chapter 11 bankruptcy in Wilmington, Delaware. The decision marks a critical juncture in Terraform Labs’ ongoing legal challenges and financial troubles.

Terraform Labs also reached a settlement with the U.S. Securities and Exchange Commission (SEC), Reuters reported. Judge Shannon called the decision a “welcome alternative” to lengthy litigation after the company suffered significant financial losses and the impact on investors.

Terraform Labs initially filed for Chapter 11 bankruptcy protection in January. The company settled with the SEC in June for $4.47 billion after the federal agency initially sought $5.3 billion in April.

Once the bankruptcy is concluded, Terraform Labs is expected to distribute between $184.5 million and $442.2 million to its creditors and shareholders.

Terraform Labs’ current CEO, Chris Amani, revealed via X in June that the company had always planned to dissolve and was currently in the final stages of shutting down its operations.

1/ With the proposed deal now public, I can finally share some details about TFL’s future.

— Chris Amani | Terra (@fleece_cannon) June 12, 2024

The company admitted that it is “impossible” to estimate the total value of cryptocurrency losses that will be repaid during the liquidation process. The figures released are only approximate, and the exact amounts remain unclear. While Terraform Labs will first reach a settlement with its creditors, the U.S. Securities and Exchange Commission (SEC) will only begin collecting on the settlement once those payments are made.

The SEC accused Terraform Labs and its co-founder Do Kwon of defrauding investors through a multibillion-dollar cryptocurrency scheme. The collapse of Terraform’s TerraUSD and Luna stablecoins wiped out approximately $60 billion in investor assets.

After the accident, Kwon evaded authorities for months, moving between locations in Europe and Asia. He was eventually arrested in Montenegro last spring and has been held in custody since then, awaiting possible extradition to the United States or South Korea. Montenegro’s Supreme Court is expected to rule this month on whether there were legal violations in the extradition process.