SEC slams Terraform Labs' law firm for 'staggering' $166M retainer 😱

Terraform Labs Accused of Siphoning $166 Million into a Slush Fund for Lawyers

The U.S. Securities and Exchange Commission (SEC) has criticized Terraform Labs, a bankrupt crypto firm, for making a $166 million retainer payment to law firm Dentons. The SEC argues that the payment was used to create an “opaque slush fund” for lawyers and claims that Terraform Labs should not be allowed to hire Dentons or pay litigation costs during its bankruptcy proceedings.

The SEC highlights the fact that Terraform Labs made a $122 million payment to the Dentons Advance Payment Retainer within 90 days before filing for bankruptcy. This creates a potential conflict of interest between Terraform Labs and Dentons, as the money could be used to repay the firm’s creditors.

In response, the SEC states that Dentons should not represent Terraform Labs unless it returns the remaining $81 million in the retainer account. Furthermore, the SEC suggests that Dentons’ fees should be subject to oversight from the bankruptcy court.

Terraform Labs requested permission from the bankruptcy court to hire Dentons as special litigation counsel and allocate $6.3 million in legal costs to employees and outside partners facing litigation. Approximately $3.25 million of this amount would be used to cover employees’ legal bills.

Terraform Labs’ Bankruptcy and Legal Troubles

Terraform Labs, known for its LUNA and TerraUSD cryptocurrencies, filed for voluntary Chapter 11 bankruptcy in Delaware last month. The collapse of Terra’s ecosystem in 2022 had a ripple effect on the crypto industry, leading to the downfall of other crypto firms like FTX and Three Arrows Capital, which contributed to a prolonged bear market.

The company hopes that its bankruptcy filing will enable it to pursue an “all-or-nothing” appeal in the securities fraud case brought against it by the SEC. Meanwhile, Terraform Labs co-founder Do Kwon is currently imprisoned in Montenegro and faces extradition to the U.S., where he is confronted with a civil fraud lawsuit from the SEC and criminal charges from the Southern District of New York’s U.S. Attorney’s Office.

SEC Challenges Terraform Labs’ Retainer Payment

The SEC criticizes Terraform Labs for its $166 million retainer payment to law firm Dentons, alleging that the funds were funneled into an “opaque slush fund” for lawyers.

The SEC argues that Terraform Labs should not be allowed to hire Dentons or pay litigation costs during its bankruptcy proceedings.
Terraform Labs paid $122 million into the Dentons Advance Payment Retainer within 90 days before filing for bankruptcy, creating a potential conflict of interest.
The SEC demands that Dentons returns the remaining $81 million in the retainer account and that its fees are subject to oversight from the bankruptcy court.

Terraform Labs’ Request and Legal Costs

Terraform Labs seeks approval from the bankruptcy court to engage Dentons as special litigation counsel and allocate $6.3 million in legal costs.

Approximately $3.25 million would be used to cover employees’ legal bills.
The allocation of legal costs has raised concerns due to Terraform Labs’ bankruptcy status and potential conflicts of interest.

Terraform Labs’ Bankruptcy and Impact on Crypto Industry

Terraform Labs, responsible for popular cryptocurrencies LUNA and TerraUSD, filed for voluntary Chapter 11 bankruptcy in Delaware.

The collapse of Terra’s ecosystem in 2022 triggered a chain reaction that led to the downfall of other crypto firms like FTX and Three Arrows Capital.
This series of failures contributed to a prolonged bear market in the crypto industry.

Terraform Labs’ Bankruptcy Filing for Legal Appeal

Terraform Labs believes that its bankruptcy filing will allow it to pursue an “all-or-nothing” appeal in the securities fraud case brought against it by the SEC.

The company aims to leverage the bankruptcy proceedings to strengthen its position in the legal battle with the SEC.

Co-founder Do Kwon’s Legal Troubles

Terraform Labs co-founder Do Kwon is currently serving a jail sentence in Montenegro and faces extradition to the U.S.

Kwon is confronted with a civil fraud lawsuit from the SEC and criminal charges from the Southern District of New York’s U.S. Attorney’s Office.
His legal troubles are an additional challenge for Terraform Labs during its bankruptcy proceedings.

🔥 Hot Take: SEC Challenges Terraform Labs’ Retainer Payment, Highlighting Potential Conflicts of Interest

The SEC’s criticism of Terraform Labs’ $166 million retainer payment to Dentons raises concerns about potential conflicts of interest within the bankrupt crypto firm. By claiming that the funds were used to create an “opaque slush fund” for lawyers, the SEC argues that Terraform Labs should not be allowed to hire Dentons or pay litigation costs during its bankruptcy proceedings. The allocation of $6.3 million in legal costs, including $3.25 million for employees’ legal bills, further complicates the situation. Terraform Labs’ bankruptcy filing and the legal troubles faced by co-founder Do Kwon add to the complexity of the case. It remains to be seen how the bankruptcy court will address these issues and what impact they will have on Terraform Labs’ appeal against the SEC’s securities fraud lawsuit.