A U.S. bankruptcy court has approved Terraform Labs’ plan to wind down its operations as part of the firm’s Chapter 11 bankruptcy proceedings.
Judge Brendan Shannon of the U.S. Bankruptcy Court for the District of Delaware gave the green light on Sept. 19, allowing the company to proceed with its bankruptcy plan, which it had filed for in January 2024, citing estimated liabilities and assets between $100 million and $500 million.
Judge Shannon described the plan as a “welcome alternative” to prolonged litigation aimed at addressing investor losses. Terraform’s bankruptcy came in the wake of the U.S. Securities and Exchange Commission (SEC) filing a lawsuit against the firm and its founder, Do Kwon, in February 2023.
Terraform Labs was one of the first major crypto platforms to fail in 2022, following the collapse of its algorithmic stablecoin, UST. The instability of UST and claims made by Terraform’s founders about the blockchain’s potential use cases were cited as key factors in its downfall. The company’s collapse was followed by other crypto firms such as BlockFi, FTX, and Celsius filing for bankruptcy later in the same year.
In April 2024, a judge ruled that Terraform and Kwon were liable for defrauding investors and ordered them to pay roughly $4.5 billion in fines and penalties to the SEC. During the bankruptcy hearing on Sept. 19, Terraform reportedly suggested that it could pay between $185 million and $442 million as part of the winding-down process, although it acknowledged that total losses remain “impossible to estimate.”
It remains unclear whether many of Terraform’s investors will be fully compensated for their losses.
Terraform’s founder Do Kwon has not attended any of the SEC or bankruptcy proceedings in person. He was arrested in Montenegro in 2023 for using falsified travel documents and served a four-month prison sentence.
Kwon is currently awaiting extradition to either the United States or South Korea, where he faces potential criminal charges. His extradition case has been under review by Montenegro’s courts for months.
Under the terms of the settlement with SEC, Terraform Labs agreed to pay $4.47 billion, which includes $3.58 billion in disgorgement and a $420 million civil penalty. The agency had sought to impose a $5.3 billion penalty, its largest fine yet on a cryptocurrency project.
The settlement also prohibits co-founder Do Kwon from serving as an officer or director of any public firm. On his part, Do Kwon is personally responsible for $110 million in disgorgement penalties and roughly $14.3 million in prejudgment interest, as per the settlement agreement.
