Terraform Labs’ Bold Strategy: Bankruptcy as a Shield Against SEC Lawsuit

• The CEO of Terraforms labs is attempting to curb the company’s losses following the lawsuit filed by the U.S SEC against Terraform Labs and its founder Do Kwon.                            
•  Chris Amani is certain that filing for bankruptcy could aid it in its legal battle against the regulatory body.

Terraform Labs, the company behind the creation of Terra, an open-source public blockchain, is attempting to salvage what is left of its firm. Notably, the company recently filed for bankruptcy, which it believes will aid it in its legal battle with U.S regulators.

Speaking to this effect is Chris Amani, the CEO of Terraform Labs who filed for bankruptcy, and is convinced that the firm could go on to pursue an appeal in connection with the lawsuit it was slammed with, by the U.S Securities and Exchanges Commissions (SEC).

In the filing, Amani explained that a Chapter 11 case is important for the firm to continue operations and “preserve value for its creditors and stakeholders (including the Terra community) provide an orderly process for resolving competing claims against it.” If the appeal is successful, it would erase the largest claims against the firm, its creditors and the community as a whole.

The SEC sued Terraform Labs and its now imprisoned founder Do Kwon back in 2023, following the collapse of the TerraUSD Stablecoin, and the Terra (LUNA) token, both of which were affiliated with the Terra blockchain. The assets lost both their market value, totaling at an estimated $40 billion.

Do Kwon’s future remains unknown

According to the SEC, the firm played a significant role in deceiving its investors regarding the its stablecoin’s position in the market. Investors were initially convinced that TerraUSD was stable, however, the asset lost its dollar peg in 2022.

As a result, investors and traders lost a significant portion of their holdings.
On Jan. 21st, the company filed for bankruptcy, and more recently, on the 30th of January, Terraform’s Chris Amani wrote an appeal to a Bankruptcy Court based in Delaware, explaining the significance of its Chapter 11 bankruptcy in its case with the SEC.

Amani who has been very vocal on X, has made a series of posts regarding the company’s current position. In one post, Amani pushed back on what he reffered to as false claims from the public, and maintained that the TFL team is learning from its mistakes and is committed to supporting its community.

It’s been hard to sit by quietly while people spread false claims for their own personal gain. The reason we have been able to hold the TFL team together and continue building is because we know the truth, are willing to learn from mistakes and have support from the community.

— Chris Amani | Terra (@fleece_cannon) July 29, 2023

On the other hand, Do Kwon who was arrested in March and charged with fraud by the U.S prosecutors in Manhattan, has been fighting for an extradition to the U.S from Montenegro.  According to a recent statement from his lawyer, the former Terra boss may soon be extradited to the United States.

The Chapter 11 bankruptcy filed by prosecutors could make it possible for the firm to bypass the process of post a supersedeas bond containing over 100% of its judgment, and file for an appeal directly.