SEC Expresses Concern About Terraform Labs’ $166M Legal Fee; Find Out the Reason Behind It
A twist in the saga of Terraform Labs has caught the attention of the U.S. Securities and Exchange Commission (SEC), as it expresses concerns over the crypto firm’s $166 million payment to its law firm, Dentons. The SEC is urging the Delaware bankruptcy court to investigate this substantial transaction, raising suspicions of potential attempts to evade legal repercussions.
What is the story behind this large payment, and how does it impact Terraform Labs, Dentons, and the investors caught in the crossfire? Keep reading to find out.
A Complex Financial Trail
The SEC has shed light on a series of financial maneuvers, alleging that Terraform Labs systematically transferred $166 million to Dentons since the beginning of 2023. The SEC argues that these transfers may have been strategically executed to avoid future complications related to allegations of defrauding investors.
By labeling these funds as an “opaque slush fund for its lawyers,” the SEC raises significant concerns about the well-being of investors and creditors who are seeking repayment in Terraform’s bankruptcy case.
Terra’s Legal Predicament
In response to the SEC’s allegations of securities fraud, Terraform Labs filed for Chapter 11 bankruptcy in January. The objective? To utilize the bankruptcy process as a means to contest a December ruling that did not fully align with the SEC. The ruling accused Terraform Labs and its founder, Do Kwon, of violating U.S. law by failing to register two digital currencies, which caused turmoil in the cryptocurrency markets in 2022.
The SEC’s Vigilant Stance
In its filing, the SEC calls for increased oversight from the bankruptcy court. The concern revolves around Terraform’s substantial $166 million payment to Dentons, which could hinder the court’s examination of the company’s financial transactions.
Of particular significance is the fact that a significant portion of the payment, amounting to $122 million, occurred within the 90 days leading up to Terraform’s bankruptcy filing. The SEC argues that this timeframe could result in actions taken to repay other creditors, potentially leading to conflicts of interest between Terraform and Dentons.
In a compelling plea, the SEC states that Dentons should not represent Terraform or its affiliates unless it returns the remaining $81 million from the payment. Additionally, the SEC insists on subjecting Dentons’ future fees to the scrutiny of the bankruptcy court.
The Final Countdown
All eyes are now on U.S. Bankruptcy Judge Brendan Shannon, who is scheduled to hear arguments on March 5 in Wilmington, Delaware. The outcome of this legal clash will have significant implications for Terraform Labs, Dentons, as well as the investors and creditors caught in the midst of this turmoil.