Terraform Labs Gets Court Approval for Liquidation Transactions

Terraform Labs, the company behind TerraUSD (UST) and Luna, has received court approval to end operations in bankruptcy following a settlement with the US Securities and Exchange Commission (SEC).

According to a Reuters report, the liquidation plan was approved by U.S. Bankruptcy Judge Brendan Shannon, who called it a “welcome alternative” to further litigation over investor losses. The approval marks the final step in Terraform’s bankruptcy proceedings.

Terraform Legal Issues

The development comes three months after Terraform and co-founder Do Kwon reached a $4.47 billion settlement with the SEC to settle fraud charges related to the collapse of the Terra ecosystem.

The agency accused Terraform and the co-founder of misleading investors about the stability of TerraUSD, an algorithmic stablecoin that collapsed in May 2022 after failing to maintain its $1 parity.

After deviating from the US dollar, the TerraUSD Luna token crashed, wiping out $40 billion in market value, causing devastating losses to investors and triggering a wave of bankruptcies for several companies in the sector.

As part of this settlement with the SEC, Terraform agreed to pay $3.58 billion in settlement and $469 million in prejudgment interest, while Kwon agreed to pay $110 million in settlement and $14.32 million in prejudgment interests jointly with the company.

The SEC might get nothing

It has been agreed that the settlement amount will be paid only after Terraform has settled the aggrieved investors and other general unsecured creditors as part of its bankruptcy settlement. So the SEC could wind up with little or nothing.

According to Terraform, the value of crypto losses that will be payable during the company’s liquidation is currently “impossible to estimate.” However, it estimated that it could pay between $184.5 million and $442.2 million to crypto buyers and other interested parties as part of its bankruptcy settlement.

In its bankruptcy filing in January, Terraform estimated assets and liabilities ranging from $100 million to $500 million and creditors ranging from $100 million to $199 million.

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