Terraform Labs has received court approval to wind down its operations in bankruptcy after settling a lawsuit with the US Securities and Exchange Commission (SEC). The approval was granted by US Bankruptcy Judge Brendan Shannon in Wilmington, Delaware, who described the bankruptcy plan as a “welcome alternative” to further litigation over investor losses. This marks the final step in Terraform’s bankruptcy proceedings, which began in January.
Following a jury’s ruling of liability for investor fraud in April, Terraform agreed to settle the case with the SEC by paying a $4.47 billion fine. The company was accused of defrauding investors by $40 billion when the Terra ecosystem collapsed in 2022. Co-founder Do Kwon was also held liable for $110 million of the settlement amount, along with $14.3 million in prejudgment interest. He must transfer ownership interests in PYTH tokens and other holdings to the Terraform bankruptcy estate to satisfy the monetary penalties and compensate harmed investors through a liquidating trust.
The settlement amount will only be paid to the regulator once Terraform covers all losses claimed during its liquidation process. The company estimates it could pay between $184.5 million and $442.2 million to crypto purchasers and other stakeholders in its bankruptcy liquidation. However, the total value of eligible crypto losses remains unknown. Terraform began preparations for its wind-down in early September by moving nearly $63 million worth of Bitcoin to a new address.
In summary, Terraform Labs has received court approval to wind down its operations in bankruptcy after settling a lawsuit with the SEC. The settlement involves a $4.47 billion fine for defrauding investors by $40 billion, with co-founder Do Kwon held liable for a portion of the amount. Assets including ownership interests in PYTH tokens will be transferred to the bankruptcy estate to compensate harmed investors through a liquidating trust. The SEC will only receive the settlement amount after all losses are covered in the liquidation process. Terraform estimates it could pay between $184.5 million and $442.2 million to stakeholders, with the total value of eligible crypto losses remaining unknown.
