KEY POINTS
- Judge Shannon reportedly said Terraform's bankruptcy plan was a 'welcome alternative' to further litigation
- Terraform previously agreed to pay nearly $4.5 billion to settle a fraud case filed by the SEC
- Co-founder Do Kwon remains in Montenegro as South Korea and the US push for his extradition
Cryptocurrency platform Terraform Labs, which was behind the Terra (LUNA) and TerraUSD (UST) network that imploded in 2022, has reportedly received court approval to wind down operations in bankruptcy.
U.S. Bankruptcy Judge Brendan Shannon approved the fallen crypto firm's bankruptcy plan Thursday, Reuters first reported. The news comes after the defunct company agreed to settle a lawsuit initiated by the U.S. Securities and Exchange Commission (SEC) over billions lost when the Terra ecosystem imploded.
Ending What Could've Been a Long Legal Battle
According to the report, Bankruptcy Judge Brendan Shannon approved Terraform's winding down plan, saying it was a "welcome alternative" instead of going through further litigation over the platform's collapse that's estimated to have wiped out $40 billion in investor funds.
Terraform reportedly estimated that it can pay between $184.5 million and $442.2 million to UST and LUNA customers and stakeholders as part of its bankruptcy liquidation – figures that are significantly far from the estimated losses investors incurred.
Settling with the SEC
News of the approval to wind down came a few months after Terraform settled with the SEC over a fraud case initiated by the Wall Street regulator in relation to the UST/LUNA ecosystem's implosion.
Terraform agreed to pay nearly $4.5 billion in disgorgement and civil penalties, with Terraform co-founder Do Kwon having agreed to pay "no less than $204,320,196" from his own pocket. The settlement also noted that Kwon and his collapsed crypto empire will be permanently banned from buying or selling crypto securities.
Reuters noted that the SEC isn't expected to collect a huge chunk of the settlement amount because the financial regulator agreed to be paid only after Terraform completes its payout of crypto loss claims by investors and stakeholders.
Terraform's Journey from Riches to Rock Bottom
Following the UST/LUNA network's collapse, Kwon was charged by U.S. prosecutors for fraud and is also faced with similar charges in South Korea. South Korean prosecutors also accused him of having sent millions to a top local law firm even before UST and LUNA fell from grace, seemingly anticipating that his company will crash.
In the implosion's aftermath, Terraform continued to operate and Kwon became a fugitive. He was finally arrested earlier last year in Montenegro for using fake documents. South Korea and the U.S. are battling for his extradition.
Amid Kwon's legal woes, Terraform, under a new management, finally filed for Chapter 11 bankruptcy in January, saying it was necessary to ensure that operations continued and support for the Terra community ensues.
