- The SEC’s legal battle with Terraform Labs over the collapse of TerraUSD continues to unfold.
- Funds were allegedly diverted from investors and creditors into an “opaque slush fund” for lawyers.
- Terraform Labs faces increased scrutiny as SEC challenges resource allocation.
The United States Securities and Exchange Commission (SEC) has raised objections to Terraform Labs’ award of a $166 million retainer to law firm Dentons.
This development comes amid an ongoing legal fight between Terraform Labs and the SEC, stemming from the collapse of TerraUSD and Terraform Labs’ subsequent bankruptcy filing in January 2024.
Alleged embezzlement
The SEC claims that the substantial down payment to Dentons represents a misappropriation of funds that should rightfully be allocated to investors and creditors involved in Terraform’s bankruptcy proceedings. The commission called the allocation an attempt by Terraform Labs to create an “opaque slush fund for its lawyers,” rather than meeting financial obligations owed to stakeholders.
The SEC’s objections go beyond the retainer payment, as it also disapproves of Terraform’s intention to hire Dentons for legal representation and to cover its employees’ litigation costs. According to the SEC, this move by Terraform Labs can be interpreted as an effort to circumvent possible future judgments in the SEC lawsuit.
Legal battle and bankruptcy
Terraform Labs and its founder, Do Kwon, are currently embroiled in a legal battle with the SEC following the collapse of TerraUSD and the LUNA token in May 2022. The fallout from these events led to significant losses for investors, prompting Terraform Labs to file a complaint. Chapter 11 Bankruptcy Protection in Delaware.
The SEC’s position highlights the contentious nature of the legal proceedings, with the commission arguing that the misappropriated funds could have been used to provide restitution to investors and creditors affected by Terraform’s bankruptcy. Despite CoinDesk’s requests for comment, neither Terraform Labs nor Dentons immediately responded to the SEC’s objections.
As the legal dispute between Terraform Labs and the SEC plays out, the allocation of significant financial resources for legal representation remains a point of contention. The SEC’s objections to Terraform’s $166 million deposit payment to Dentons underscore the complexities of dealing with the aftermath of TerraUSD’s collapse and subsequent bankruptcy filing.
Going forward, stakeholders will closely monitor developments in legal proceedings, as their outcome could have far-reaching implications for Terraform Labs, its investors, and the broader cryptocurrency ecosystem. With SEC scrutiny intensifying, Terraform Labs faces increased pressure to respond to allegations regarding the award of…
