Terraform faces ‘significant liability’ after SEC trial

Terraform plans to appeal an earlier summary judgment from Judge Rakoff pending the trial outcome

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Terraform Labs and DansFi/Shutterstock modified by Blockworks

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Terraform CEO Chris Amani said in a filing that his company filed for bankruptcy because Terraform would “likely not be able to satisfy” a potential money judgment in the Securities and Exchange Commission’s case against it.

“Because of the size of the potential money judgment in the SEC Enforcement Action, the Debtor would likely not be able to satisfy such judgment nor would it be able to post the supersedeas bond necessary for an appeal.”

Amani became CEO last summer. According to the filing, he was previously chief operating officer and chief financial officer before taking over company operations.

He said that the board met in late January and decided to file for Chapter 11 to protect its interests. These include its software development business and the Luna value for shareholders.

Read more: Terraform files for bankruptcy protections ahead of trial

The company also plans to appeal the summary judgment issued by Judge Jed Rakoff last December. Rakoff sided with the SEC, ruling that there’s “no genuine dispute” that UST, LUNA, wLUNA and MIR are securities.

“Although the District Court has not yet addressed remedies or entered any money judgment, the Debtor faces significant liability as a result of the summary judgment decision and the pending securities fraud claims to be resolved at trial,” Amani wrote. 

Terraform’s trial, which was pushed back earlier this month, is set for March.

The company plans to file an appeal, following the outcome of the trial, with the US Court of Appeals for the Second Circuit. 

“A Chapter 11 case is, therefore, critical to the Debtor’s ability to operate as a going concern, [and] preserve value for its creditors and stakeholders (including the Terra community),” Amani said.

However, if the SEC is successful in its court case — even after an appeal — then Terra will “utilize the Chapter 11 tools  to allocate value among creditors, including the SEC.”

The SEC filed a suit against Terraform and founder Do Kwon in February of last year. The Commission alleges that the company orchestrated a “multi-billion dollar crypto asset securities fraud.” 

In 2022, Terra’s algorithmic stablecoin TerraUSD depegged and crashed, wiping roughly $800 billion from crypto markets and causing some lenders — including Celsius and Voyager — to declare bankruptcy.


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