- U.S. Bankruptcy Judge Brendan Shannon approved Terraform Labs’ wind-down plan on September 19, 2024.
- The company agreed to a $4.47 billion settlement with the SEC.
- Terraform Labs plans to distribute between $184.5 million and $442.2 million to stakeholders.
- Co-founder Do Kwon faces $110 million in liabilities as part of the settlement.
- The collapse of TerraUSD and Luna tokens triggered significant market downturns.
On September 19, 2024, U.S. Bankruptcy Judge Brendan Shannon gave the green light to Terraform Labs’ plan to wind down its operations.
This approval occurred during a hearing in Wilmington, Delaware, where the judge described the bankruptcy plan as a “welcome alternative” to extended litigation over investor losses.
Terraform Labs, embroiled in legal challenges following the 2022 collapse of its TerraUSD and Luna tokens, aims to distribute between $184.5 million and $442.2 million to its stakeholders.
Settlement with the SEC
Terraform Labs has reached a significant agreement with the U.S. Securities and Exchange Commission (SEC). The company and its co-founder, Do Kwon, have been accused of defrauding investors, leading to a $4.47 billion settlement.
This amount includes penalties that will be paid only after compensating affected investors and creditors.
The settlement marks a pivotal move in addressing the grievances of countless investors impacted by the token collapse.
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Legal Consequences for Do Kwon
Do Kwon, the co-founder of Terraform Labs, is facing both civil and criminal charges related to the fraud allegations.
Despite denying any wrongdoing, Kwon is now liable for $110 million as part of the SEC settlement.
The charges against him underscore the serious legal repercussions stemming from the company’s malpractices.
“The approval of the wind-down plan is a welcome alternative to the uncertainty and expense of litigation.”
U.S. Bankruptcy Judge Brendan Shannon
The collapse of TerraUSD, an algorithmic stablecoin designed to maintain a constant value, resulted in significant financial turmoil in the cryptocurrency market.
Investors suffered an estimated $40 billion in losses, setting off a chain reaction of financial distress across the sector.
Following these events, Terraform Labs filed for Chapter 11 bankruptcy in January 2024 to manage its financial obligations and settle outstanding claims.
The court-approved wind-down of Terraform Labs signifies a turning point for the embattled company. While the settlement with the SEC and the distribution of funds offer some redress for affected stakeholders, the episode highlights the inherent risks in the cryptocurrency market.
This case serves as a cautionary tale, emphasizing the need for stringent regulatory oversight to protect investors.
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