Terraform Labs Challenges SEC’s Objection to Special Counsel Payment
Crypto firm Terraform Labs has filed a lawsuit against the US Securities and Exchange Commission (SEC) in response to the regulator’s objection over a $166M payment made to special litigation counsel Dentons. The SEC argued that the payment was an attempt by Terraform Labs to avoid paying its creditors, but the crypto firm refuted this claim, stating that the objection amounted to government overreach and an attempt to create a disadvantage for them.
Terraform Labs’ Legal Battles
Terraform Labs is currently facing several court cases, including a civil enforcement action and a grand jury investigation in the Southern District of New York. The company filed a motion seeking relief from the court to develop legal strategies, elicit testimony, and gather important facts for its defense against the SEC Enforcement Action. Terraform Labs is awaiting permission from the court to overrule the SEC’s objection and settle its legal fees, as it believes the objection threatens its daily business operations.
SEC’s Concerns and Conflict of Interest
The SEC argues that Terraform Labs should not be allowed to settle attorneys or afford to pay millions of dollars during its bankruptcy. The financial regulator revealed that Terraform Labs had paid $122M into Dentons’ Advance Payment Retainer within 90 days before filing for bankruptcy. The SEC believes that both parties have a potential conflict of interest, and Dentons should only represent Terraform Labs if it returns the funds to the retainer account.
Founder Do Kwon’s Trial Delayed
Do Kwon, co-founder of Terraform Labs, is expected to miss the beginning of his trial on fraud charges brought by the SEC due to delays in his extradition from Montenegro. Kwon and Terraform Labs’ former CFO Chang-joon Han are currently serving a four-month jail sentence in a Montenegro prison for possessing forged travel documents. Kwon recently won his extradition appeal, and the case will be retried following the decision of the Appellate Court of Montenegro.
Terraform Labs and the Collapse of UST
Terraform Labs faced significant challenges in 2022 when its algorithmic stablecoin TerraUSD (UST) and LUNA cryptocurrencies crashed, leading to a market crash and the shutdown of other firms. The collapse of UST resulted in the implosion of the LUNA ecosystem, and Do Kwon and Chang-joon Han are wanted for their role in this collapse on fraud charges.
Conclusion
Terraform Labs is pushing back against the SEC’s objection to its payment to special litigation counsel Dentons. The crypto firm argues that the objection is government overreach and aims to create a disadvantage for them. Terraform Labs is awaiting court permission to settle its legal fees and defend itself against the SEC Enforcement Action. Meanwhile, co-founder Do Kwon’s trial has been delayed due to extradition issues, and he is currently serving a jail sentence in Montenegro.
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