Terraform Labs (TFL), the company behind TerraUSD (UST) and Luna (LUNA 2.0) tokens, has filed for Chapter 11 bankruptcy protection in the U.S., according to court documents filed on Sunday, January 21, 2024, in a bankruptcy court in Delaware.
TerraForm Labs has Over $450 Million in Assets and Liabilities
In a statement, TFL said the bankruptcy filing will allow it to continue its Web3 offerings expansion while navigating the ongoing legal proceedings.
It also said that it would meet all financial obligations to employees and vendors during the Chapter 11 case without requiring additional financing.
“The filing will allow TFL to execute its business plan while navigating ongoing legal proceedings, including representative litigation pending in Singapore and U.S. litigation involving the Securities and Exchange Commission (SEC),”
Terraform Labs
According to TFL, the company has $100-$500 million in assets and liabilities and they will be able to settle their debtors and employees without any outside help.
Kwon and TFL Woes Stem From The Collapse of Terra Luna Blockchain
The bankruptcy filing comes after a series of legal troubles for Terraform Labs and its co-founder, Do Kwon. The two are facing criminal charges for allegedly planning a $40 billion crypto fraud that shook the crypto markets in 2022.
Terraform Labs created UST and LUNA, two coins that worked in tandem to maintain the price of USTC at a stable price of $1.00. However, in May 2022, USTC lost its peg and plunged to near zero, triggering a massive sell-off of LUNA and other cryptocurrencies.
The collapse left millions of investors in losses.
The U.S. Securities and Exchange Commission (SEC) sued Terraform Labs and Kwon, alleging that they violated securities laws by selling unregistered securities. The SEC also sued the company for misleading investors about the stability and security of TerraUSD and Luna.
Moreover, the SEC sued Kwon for price manipulation through fake transactions and market making.
Terraform Labs is also facing a class action lawsuit in Singapore from investors who are seeking compensation for their losses.
Kwon was arrested in Montenegro in June 2022 and among other charges, he is facing criminal charges of wire fraud, securities fraud, and conspiracy.
Kwon pleaded not guilty and is awaiting extradition to the United States from Montenegro, where he is currently in detention.