Terraform Labs, in a bid to support its SEC dispute, files for bankruptcy and disputes jurisdiction concerning its cryptocurrency assets.
The Terra community has been facing continuous challenges recently. According to the U.S. Bankruptcy Court for the District of Delaware’s website, Terraform Labs has filed for Chapter 11 bankruptcy on January 21. The purpose of this move is to enhance its defense against the SEC lawsuit. CEO Chris Amani believes that bankruptcy protections could help them avoid a supersedeas bond. The appeal aims to contest the SEC’s authority by arguing that crypto assets should not be classified as securities.
Today, the company will be attending its first U.S. bankruptcy hearing. The Chapter 11 bankruptcy filing was made to strengthen their position against the SEC’s lawsuit. This strategic bankruptcy move may enable them to escape the burden of a significant bond typically required for such appeals.
In the filing, CEO Chris Amani explained that this step could alleviate a major financial burden, benefiting both the company and its community. The bankruptcy filing discloses that Terraform Labs’ assets and liabilities range from $100 million to $500 million, with 100 to 199 creditors involved.
The SEC had accused Terraform Labs and co-founder Do Kwon of engaging in a “multibillion-dollar crypto asset securities fraud” related to their stablecoin TerraClassicUSD and Luna. A recent court ruling supported the SEC’s claims, setting the stage for a bankruptcy trial similar to FTX’s.
In December, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York agreed with the SEC’s claim that Terra had offered unregistered securities. This ruling further strengthened the SEC’s case against Terra and added legal weight to the company’s alleged violations of securities laws.
In response, Amani stated that their upcoming appeal challenges the SEC’s authority by asserting that their crypto assets are not securities and that the SEC does not have jurisdiction over them. The company’s treasury currently holds around $28 million in Bitcoin, $7 million in various cryptocurrencies, and approximately $87 million in Luna.
This development comes after the SEC agreed to postpone Kwon’s trial to March 25 as he awaits extradition. If he is sent to South Korea, Kwon could face a potential 40-year prison sentence for alleged crimes committed there. In summary, Terraform Labs is utilizing bankruptcy as a strategic move to fortify its position against the SEC, with the aim of navigating the legal storm and safeguarding its interests.
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