LUCKNOW (CoinChapter.com) — Terraform Labs, the company behind the collapsed stablecoin TerraUSD, has filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the District of Delaware.
In the Jan. 21 filing, Terraform Labs claimed to have between $100 million and $500 million in estimates and liabilities. The number of creditors is estimated to be between 100 and 199, according to court filings.
“The Terra community and ecosystem have shown unprecedented resilience in the face of adversity, and this action is necessary to allow us to continue working toward our collective goals while resolving the legal challenges that remain outstanding.“
Chris Amani, CEO of Terraform Labs
“We have overcome significant challenges before and, against long odds, the ecosystem survived and even grew in new ways post-depeg; we look forward to the successful resolution of the outstanding legal proceedings,” the CEO added.
Criminal Charges
This bankruptcy filing comes after the downfall of what was once one of the largest projects in the crypto industry. Terraform Labs was founded in 2018 by Do Kwon and Daniel Shin. The firm created a stablecoin, “TerraUSD,” to maintain a steady $1 valuation through a complex algorithmic system.
The firm saw meteoric growth throughout 2020 and 2021. During this period, TerraUSD reached a market cap of over $18 billion at its peak. However, in May 2022, the stablecoin lost its peg to the US dollar, setting off a death spiral that quickly wiped out the entire Terra ecosystem.
The value of TerraUSD and its sister token, LUNA, plunged to nearly zero in a matter of days. Investors lost over $40 billion.
This crash started legal troubles for Do Kwon and his company, Terraform Labs. In February 2023, the SEC filed civil charges against Kwon and Terraform. The legal charges alleged that Kwon and his company orchestrated a “multi-billion dollar crypto asset securities fraud” surrounding UST and LUNA.
Terraform Labs fell apart badly during the downturn in the cryptocurrency market. This left Kwon running from the authorities. For months, the whereabouts of the Terra co-founder remained a mystery after the downfall of his supposedly ingenious algorithmic coins.
That mystery was partially resolved in March 2023 when Kwon was apprehended in Montenegro during an attempt to evade capture using falsified travel papers. Now awaiting extradition to the US and South Korea, the tech celebrity could spend up to 40 years behind bars if convicted.
SEC Agrees to Delay Fraud Trial
Kwon’s defense team had formally requested the postponement, likely to allow more time to build their case as federal prosecutors prepare charges. Just four dFoure, the US Securities and Exchange Commission agreed to delay the fraud trial from February to Mar. 25.
In a minor win, his lawyers secured an extra month before his initial fraud trial to prepare. However, prosecutors seem locked on landing maximum prison time for his alleged betrayal of public trust.
