Terraform Labs has been granted approval to wind down its operations as part of a bankruptcy process following an agreement to settle with the U.S. Securities and Exchange Commission (SEC). The company filed for Chapter 11 bankruptcy in January 2024 after its Terra ecosystem imploded in May 2022, leading to legal battles and investigations.
During a hearing in a Delaware court, U.S. Bankruptcy Judge Brendan Shannon approved the company’s plan, calling it a better solution than further litigation.
Accusations against Terraform Labs centered on defrauding cryptocurrency investors, who lost approximately $40 billion during the collapse of cryptocurrencies terrausd and Luna. The SEC alleged that Terraform and its founder, Kwon Do-Hyung, also known as Do Kwon, misled investors about terrausd’s stability and made false claims regarding its blockchain’s use in a well-known South Korean payment platform.
Following a jury’s ruling, Terraform Labs reached a $4.47 billion settlement with the SEC for defrauding investors. However, the company must address crypto-related claims as part of its bankruptcy before it can fulfill obligations to the SEC. Estimates suggest that eligible crypto losses may fall between $184.5 million and $442.2 million, though the exact amount remains uncertain.
Kwon and Terraform Labs were found liable for fraud by the jury, and the company agreed to settle before moving forward with additional trial phases. Kwon, who faces criminal charges in both South Korea and the U.S., continues to deny involvement in any wrongdoing.
SEC Chairman Gary Gensler described earlier: “Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings. Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt.” He added:
Terraform and Kwon fought our efforts to investigate – taking a fight over investigative subpoenas all the way to the Supreme Court.
Before court approval, Terraform Labs was still operating, though not conducting normal business. It was managing legal and financial obligations during the bankruptcy process. The court’s decision allows the company to officially shut down as part of its bankruptcy plan, which includes liquidating assets and repaying eligible stakeholders.
