US court authorizes closure of Terraform Labs amid bankruptcy

On September 19, Terraform Labs, the company behind the Terra blockchain protocol, obtained court approval to shut down its operations as part of its bankruptcy proceedings.

During a crucial hearing on Thursday, U.S. bankruptcy judge Brendan Shannon approved the company’s plan to emerge from Chapter 11 bankruptcy in Wilmington, Delaware. The decision marks a critical point in Terraform Labs’ ongoing legal challenges and financial troubles.

As technology/terraform-labs-approved-bankruptcy-wind-down-after-us-sec-settlement-2024-09-19/” target=”_blank”>reported According to Reuters, Terraform Labs also reached a settlement with the U.S. Securities and Exchange Commission. Judge Shannon described the resolution as a “welcome alternative” to protracted litigation, following the company’s significant financial losses and the impact on investors.

Terraform Labs originally filed for Chapter 11 bankruptcy protection in January. In June, the company settled with the SEC for $4.47 billion, after the federal agency had initially sought $5.3 billion in April.

With the bankruptcy discharge, Terraform Labs is expected to distribute between $184.5 million and $442.2 million to its creditors and stakeholders.

Current Terraform Labs CEO Chris Amani revealed via x in June that the company had always intended to dissolve and is now in the final stages of winding down its operations.

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The company acknowledged that it is “impossible” to estimate the total value of cryptocurrency losses that must be paid during the liquidation process. The published figures are only approximations, and the exact amounts are not yet clear. While Terraform Labs will first reach an agreement with its creditors, the US SEC will only begin collecting its settlement once those payments have been made.

The SEC had accused Terraform Labs and its co-founder, Do Kwon, of defrauding investors through a multi-million dollar cryptocurrency scheme. The collapse of Terraform’s TerraUSD and Luna stablecoins wiped out roughly $60 billion in investor assets.

After the crash, Kwon evaded authorities for months, moving between various locations in Europe and Asia. He was finally arrested in Montenegro last spring and has since been detained pending possible extradition to the United States or South Korea. Montenegro's Supreme Court is expected to rule this month on whether there were legal violations in the extradition process.