Terraform Labs strategically leverages Chapter 11 bankruptcy to fund its appeal against the SEC’s fraud lawsuit

Terraform Labs, the company behind TerraUSD and Luna cryptocurrencies, has filed for Chapter 11 bankruptcy protection, allowing it to appeal the U.S. Securities and Exchange Commission’s (SEC) securities fraud lawsuit. In a filing, Terraform Labs CEO Chris Amani emphasized the necessity of bankruptcy protection for the company’s ongoing operations, creditor and stakeholder value preservation, and managing competing claims in an organized manner. Amani highlighted that without this protection, liquidation might be inevitable after a trial and judgment entry. The SEC had charged Terraform Labs and its former CEO, Kwon Do-hyeong, with a “multi-billion dollar crypto asset securities fraud.” The company contests the SEC’s claim, asserting that the cryptocurrency tokens in question do not fall under securities regulations, thereby lying outside the SEC’s jurisdiction. The Chapter 11 filing aims to create a structured process for addressing the claims, while the bankruptcy move is viewed as a strategic step in handling potential financial consequences. The first-day hearing for the Chapter 11 filing is scheduled for Wednesday.

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