Terraform Labs Closes Operations After Court Approval, Terra Stakeholders to Receive Up to $442M

• Terraform Labs has been permitted to wind down its operations following a bankruptcy court’s approval.
• The closure process will entail an estimated payout of approximately $184.5 million to $442.2 million to various stakeholders.
• This decision arrives in the wake of Terraform’s settlement with the U.S. Securities and Exchange Commission (SEC) over significant fines and penalties.

Terraform Labs to Shut Down Operations Amid Bankruptcy Settlement

Bankruptcy Court Approves Terraform Labs’ Closure

Terraform Labs, the company behind the algorithmic stablecoin Terra, has received authorization from a bankruptcy court to cease its operations. According to recent reports, the firm is preparing for a significant financial disbursement ranging between $184.5 million and $442.2 million to its stakeholders as part of the bankruptcy proceedings. This development marks a pivotal moment in the company’s tumultuous journey within the cryptocurrency sector.

The SEC’s Role and Settlement Terms

The decision to wind down comes shortly after Terraform Labs concluded a legal showdown with the U.S. Securities and Exchange Commission (SEC). In February 2023, the SEC charged Terraform and its co-founder, Do Kwon, alleging that they had defrauded and misled investors regarding the Terra USD (UST) stablecoin, which had collapsed in the previous year. Initial negotiations saw Terraform’s legal team arguing for fines around $1 million, while the SEC tabled proposals amounting to $5.3 billion.

Agreement on Financial Penalties

Following months of legal proceedings, Terraform Labs agreed in June to settle for $4.7 billion in fines with the U.S. District Court for the Southern District of New York. This settlement required Terraform to pay $3.58 billion in disgorgement and $420 million in a civil penalty. Moreover, the settlement stipulates that Do Kwon be barred from serving as an officer or director of any public company. Notably, the SEC asserted the sequence of claims payment, with creditors being prioritized before the Commission’s claim is addressed.

Implications of the Chapter 11 Plan

Under the terms of the Chapter 11 Plan mandated for Terraform, the SEC’s recovery is conditioned upon the complete remuneration of affected investors and other unsecured creditors. The settlement documents specify that the SEC’s monetary claims will be satisfied only if all of Terraform’s assets are distributed as outlined in the plan.

Conclusion

The winding down of Terraform Labs signals the end of a significant chapter in the firm’s history and highlights the broader regulatory and financial risks inherent in the rapidly evolving cryptocurrency market. Stakeholders and investors will be closely monitoring the implementation of the bankruptcy plan and the settlement terms, as these outcomes will set precedents for future regulatory enforcement and corporate governance in the crypto space.