Terraform Labs says it filed for bankruptcy to strengthen appeal against SEC lawsuit

Terraform Labs, the crypto firm in a lawsuit with the US Securities and Exchange Commission (SEC), has filed for bankruptcy, claiming that this will improve its ability to appeal the SEC’s charges.

In a filing with the Delaware Bankruptcy Court on January 30, Terraform Labs‘ CEO, Chris Amani, reiterated the importance of Chapter 11 bankruptcy in mounting a successful appeal against the SEC’s allegations.

Terraform Labs, the creator of the now-defunct stablecoin TerraClassicUSD (USTC), declared bankruptcy on January 21.

Typically, an appeal against the SEC would require Terraform Labs to provide a “supersedeas bond,” equal to 110% of the total judgment, before proceeding.

However, the protections provided by Chapter 11 bankruptcy may allow the company to file an appeal without having to post a bond.

Amani said in the filing: “A successful appeal would eliminate the single largest claim against the debtor, thereby benefiting the debtor, its creditors, and the community more broadly.”

The upcoming appeal will challenge the SEC’s authority to charge Terraform Labs and its co-founder, Do Kwon. Amani argued that the firm’s crypto should not be classified as securities, claiming the case is outside the SEC’s jurisdiction.

The filing also stated that Terraform Labs’ treasury contains around $28 million in Bitcoin, $7 million in various other crypto, and around $87 million in Luna tokens.

The SEC filed civil charges against Terraform Labs and Kwon in February 2023, accusing them of orchestrating a “multibillion-dollar crypto asset securities fraud” involving the UST and LUNA tokens.

This bankruptcy filing comes two weeks after the SEC agreed to postpone Kwon’s upcoming fraud trial until March 25, following a request from his legal team.

Note that Kwon’s Terra Money ecosystem failed in May 2022, and he was apprehended in Montenegro in March 2023 while attempting to flee the country with fake travel documents.