Terraform files for bankruptcy protections ahead of trial
The company called the filing a “strategic step” ahead of its trial
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Terraform Labs, the blockchain development firm behind the Terra ecosystem and its algorithmic stablecoin, filed for bankruptcy protection in the US on Sunday.
The company filed the Chapter 11 paperwork in Delaware.
A press release accompanying the filing said that the move was “a strategic step that will enable it to continue its operations and support for the Terra community and ecosystem.”
The company is currently locked in a legal battle with the US Securities and Exchange Commission, with the regulator accusing both Terraform and founder Kwon of selling unregistered securities and fraud. Earlier this month, a judge sided with some of the SEC’s accusations labeling UST, LUNA and MIR securities.
“The filing will allow TFL to execute on its business plan while navigating ongoing legal proceedings, including representative litigation pending in Singapore and US litigation involving the Securities and Exchange Commission,” the press release said.
Kwon is currently detained in Montenegro after facing a short jail sentence for forging documents last year. Kwon, according to the bankruptcy paperwork, is the majority shareholder of the company with 92%.
The former CEO is at the center of two extradition requests: one from the US and another from South Korea. In December, following reports that Montengrian authorities planned to extradite Kwon to the US over his home country, Bloomberg reported that both countries asked for an extension on his extradition.
Terraform’s original trial date was set for Jan. 29. Earlier this month, the trial was delayed until March to give Kwon time to potentially attend the trial if he’s extradited.
Judge Jed Rakoff, who’s overseeing the case, warned that the delay sought by Kwon’s counsel doesn’t “guarantee” that Kwon “will be released in time.”
The bankruptcy paperwork reveals that the company has between 100-199 creditors. It also has liabilities between $100 million to $500 million. However, the company believes that funds will be made available for distribution to unsecured creditors.
Terraform CEO Chris Amani added that the company will continue to work “on infrastructure, innovative tools and products and other ecosystem support.”
Co-founder Daniel Hyunsong Shin owns the other 8% of shares. Shin was indicted by South Korean authorities back in April and also faced a trial for his role in the collapse of the TerraUSD stablecoin.
The collapse of Terra’s algorithmic stablecoin in 2022 led to roughly $800 billion being wiped from crypto markets. It also led to multiple bankruptcies from crypto hedge fund Three Arrows Capital to lenders like Celsius and Voyager.
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