Terraform Labs, the company behind TerraUSD (UST) and Luna, has received court approval to wind down operations in bankruptcy after settling with the United States Securities and Exchange Commission (SEC).
According to a Reuters report, US Bankruptcy Judge Brendan Shannon approved the wind-down plan, describing it as a “welcome alternative” to further litigation over investors’ losses. This approval signifies the final step in Terraform’s bankruptcy proceedings.
## Terraform Legal Woes
This development follows three months after Terraform and co-founder Do Kwon reached a $4.47 billion agreement with the SEC to settle fraud charges related to the collapse of the Terra ecosystem. The SEC accused Terraform and its co-founder of misleading investors about the stability of TerraUSD, an algorithmic stablecoin that collapsed in May 2022 after failing to maintain its $1 parity.
Following the depegging from the US dollar, TerraUSD’s sister token Luna plummeted, wiping out $40 billion in market value, causing devastating losses to investors, and sparking a wave of bankruptcies across multiple industry firms. As part of the settlement with the SEC, Terraform agreed to pay $3.58 billion in disgorgement and $469 million in prejudgment interest, while Kwon agreed to pay $110 million in disgorgement and $14.32 million in prejudgment interest on a joint basis with the company.
## The SEC Might Get Nothing
The settlement amount will only be paid after Terraform has compensated harmed investors and other general unsecured creditors as part of its bankruptcy wind-down. Consequently, the SEC might end up with little or nothing. According to Terraform, the value of crypto losses eligible for payment during the company’s liquidation is currently “impossible to estimate.” However, the company calculated it could pay between $184.5 million and $442.2 million to crypto purchasers and other stakeholders as part of its bankruptcy liquidation.
In its January bankruptcy filing, Terraform estimated assets and liabilities ranging from $100 million to $500 million and creditors between 100 and 199.
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