SEC Questions Bankrupt Terraform Labs’ $166M Transaction to Lawyers in Court Filing
In Brief
SEC urged the court to reconsider Terraform Labs’ engagement of Dentons, expressing concern over unusual payment of $166M made to law firm.
United States Securities and Exchange Commission (SEC) requested the United States Bankruptcy Court for the District of Delaware to reconsider blockchain company Terraform Labs’ retention of the Dentons as its special counsel, expressing concern over what they perceive as an unusually high payment made to the law firm.
Terraform Labs transferred $166 million into the Dentons Advance Payment Retainer, with $122 million of this amount moved within the 90 days preceding the company’s bankruptcy filing.
According to the SEC, this transaction appears to be an attempt to withdraw assets from the company, potentially hindering the availability of funds to settle any judgments arising from the agency’s enforcement action. $122 million transferred to an opaque slush fund for legal expenses could potentially serve as a “war chest” for Terraform Labs, enabling the company to sustain the ongoing legal dispute against the SEC.
Moreover, over half of the funds disbursed to Dentons have already been utilized to cover litigation expenses, while $81 million remains in the Dentons Advance Payment Retainer. SEC argues that Dentons should not be permitted to represent Terraform Labs unless the funds are returned.
SEC further noted that the Dentons Advance Payment Retainer seems to be utilized to settle bills related to counselling former Terraform Labs CEO Do Kwon’s criminal action in Montenegro, which is unrelated to his role at Terraform Labs.
Terraform Labs Faces Legal Turmoil
Established in 2018, Terraform Labs is an open-source software development company specializing in blockchain technology. The company was earlier developing the algorithmic stablecoin TerraUSD and the cryptocurrency Luna, both of which collapsed in 2022. Subsequently, the SEC brought fraud charges against the company and its co-founder, Do Kwon, who was arrested in Montenegro and is currently awaiting extradition.
Recently, Terraform Labs submitted a Chapter 11 bankruptcy filing to the Bankruptcy Court for the District of Delaware, disclosing estimated assets and liabilities in the range of $100 million to $500 million in its filing. The bankruptcy protection, while enabling the company’s operational continuity, would allow it to pursue an appeal against the SEC.
With the recent scrutiny from the SEC, Terraform Labs continues to grapple with a complex legal landscape amidst the company’s bankruptcy proceedings and in anticipation of Do Kwon’s upcoming trial.
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Alisa is a reporter for the Metaverse Post. She focuses on investments, AI, metaverse, and everything related to Web3. Alisa has a degree in Business of Art and expertise in Art & Tech. She has developed her passion for journalism through writing for VCs, notable crypto projects, and scientific writing. You can contact her at alisa@mpost.io
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Alisa is a reporter for the Metaverse Post. She focuses on investments, AI, metaverse, and everything related to Web3. Alisa has a degree in Business of Art and expertise in Art & Tech. She has developed her passion for journalism through writing for VCs, notable crypto projects, and scientific writing. You can contact her at alisa@mpost.io
