Terraform Labs Granted Permission to Hire Dentons for Legal Representation
US Judge Brendan Shannon has approved bankrupt crypto company Terraform Labs’ request to hire Dentons as its legal representation. The decision was made during a bankruptcy court hearing in Wilmington, Delaware, where Shannon deemed Terraform’s legal spending to be a necessary and appropriate use of the company’s financial resources.
Opposition to Terraform’s Legal Fees
Terraform Labs has already paid Dentons a total of $166 million in legal fees since the beginning of 2023. However, this move was met with opposition from the Securities and Exchange Commission (SEC) and Terraform’s creditors. They argued that the payments were effectively diverting funds away from them.
Agreement to Return Funds
In order to appease its opponents, Dentons agreed to return $48 million to Terraform. Additionally, the law firm committed to subjecting its future legal work to greater oversight by the bankruptcy court.
Tough Case for Dentons
Dentons faces a challenging task not only because of the large sums it is receiving for defending Terraform but also due to ongoing lawsuits between crypto companies and regulators. The SEC is currently pursuing several other companies for alleged securities frauds, including Ripple, Coinbase, and Binance.
In December, a federal judge ruled that Terraform Labs and its founder Do Kwon had violated US securities laws by failing to register their main cryptocurrencies, UST and LUNA (LUNC), as securities offerings. LUNC is the renamed version of the original LUNA, which played a crucial role in pegging Terra’s flagship cryptocurrency, UST, to the US dollar.
UST’s Clever Mechanism
The UST cryptocurrency was designed with a burn/mint mechanism that maintained its value at $1. To create one UST token, users had to burn $1 worth of LUNA, and vice versa. However, this mechanism failed in May 2022 when a mass exodus from UST caused LUNA V1 to enter a hyperinflationary spiral.
Repercussions for the Industry
The collapse of Terraform’s ecosystem had widespread repercussions for the crypto industry, triggering a recession. Many companies exposed to Terra’s ecosystem filed for bankruptcy, including lenders like Celsius and Voyage, exchanges like Vauld and FTX, and hedge fund Three Arrows Capital (3AC). The SEC claims that Terraform’s ecosystem wipeout caused $40 billion in damages.
Hot Take: Terraform Labs Secures Dentons Representation Despite Objections
Despite objections from the SEC and Terraform’s creditors, bankrupt crypto company Terraform Labs has been granted permission to hire Dentons as its legal representation. This decision was made by US Judge Brendan Shannon during a bankruptcy court hearing in Delaware. While Dentons’ legal fees have raised eyebrows, they will also face scrutiny due to ongoing lawsuits between crypto companies and regulators. The collapse of Terraform’s ecosystem and its violation of securities laws have had significant repercussions for the industry as a whole.
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