Court Approval Granted
Terraform Labs has secured court approval to wind down its operations in bankruptcy. This decision follows the settlement of a lawsuit with the US Securities and Exchange Commission (SEC). On September 19, US Bankruptcy Judge Brendan Shannon approved Terraform’s bankruptcy plan in Wilmington, Delaware. He described the approval as a “welcome alternative” to extended litigation over investor losses. This ruling concludes Terraform’s bankruptcy proceedings, which began in January.
Settlement and Liability for Fraud
The court’s approval comes after a jury found Terraform liable for investor fraud in April. To resolve the case, the company agreed to pay a $4.47 billion fine to the SEC. Investigations revealed that Terraform defrauded investors of approximately $40 billion when the Terra ecosystem collapsed in 2022.
Do Kwon’s Financial Responsibilities
Terraform’s co-founder, Do Kwon, faces personal liability for $110 million of the settlement. Additionally, he must pay $14.3 million in prejudgment interest. Kwon is required to transfer various assets, such as ownership stakes in PYTH tokens, to the Terraform bankruptcy estate. The company will use these assets to cover penalties and compensate affected investors through a liquidating trust.
Implications of the Settlement
Importantly, Terraform will only pay the settlement amount to the SEC after it addresses all losses claimed during liquidation. Consequently, the SEC might not collect the full settlement if the company’s resources are depleted.
Estimated Payouts and Ongoing Uncertainty
Terraform estimates that it could pay between $184.5 million and $442.2 million to cryptocurrency purchasers and other stakeholders. However, it also states that determining the total value of eligible cryptocurrency losses remains “impossible to estimate.”
Preparations for Wind-Down
In early September, Terraform began preparations for its wind-down. The company transferred nearly $63 million worth of Bitcoin (BTC) to a new address as part of this restructuring effort.
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