Terraform Labs has approved bankruptcy liquidation after the US SEC settlement by Reuters

By Dietrich Knauth

(Reuters) – Terraform Labs received court approval on Thursday to cease operations in bankruptcy after agreeing to settle a U.S. Securities and Exchange Commission lawsuit that accuses the company of defrauding cryptocurrency investors who lost around $40 billion when TerraUSD and Luna tokens crash in 2022.

U.S. Bankruptcy Judge Brendan Shannon approved Terraform’s bankruptcy plan at a hearing in Wilmington, Delaware, calling it a “welcome alternative” to continuing litigation over investor losses.

Terraform, which filed for bankruptcy in January, agreed to a $4.47 billion SEC settlement after a Manhattan jury found the company liable in April for defrauding investors.

The SEC will collect little, if any, of this settlement amount because it agreed to be paid only after Terraform satisfies crypto loss claims as part of the bankruptcy liquidation. The company said it is currently “impossible to estimate” the total amount of crypto losses that will be eligible to be paid during the liquidation.

Terraform estimated it could pay between $184.5 million and $442.2 million to cryptocurrency buyers and other interested parties as part of its bankruptcy liquidation.

The SEC had accused Terraform and founder Do Kwon of misleading investors about the stability of TerraUSD, a stablecoin it designed to maintain a constant price of $1, and of falsely claiming that blockchain- Terraform was used in a popular Korean mobile payment app.

A jury found Kwon and Terraform Labs liable on civil fraud charges in the lawsuit, and Kwon and Terraform decided to settle with the SEC ahead of a second phase of the trial that would have determined the amount of damages.

Kwon faces related criminal charges in both the United States and South Korea. He denied wrongdoing.

TerraUSD and the closely related Luna, a more traditional token that Kwon also designed, collapsed in May 2022 when TerraUSD failed to maintain its link to the dollar. The collapse of the two cryptocurrencies caused a market crash that triggered a wave of bankruptcies in the crypto industry.