Terraform Labs received court approval on Thursday to wind down its operations in bankruptcy after agreeing to settle a U.S. Securities and Exchange Commission lawsuit accusing the company of defrauding cryptocurrency investors who lost an estimated $40 billion when the TerraUSD and Luna tokens collapsed in 2022.
A U.S. bankruptcy judge on Thursday approved a plan by Terraform Labs to wind down its operations in bankruptcy, following a settlement of a lawsuit by the U.S. Securities and Exchange Commission over the collapse of Terraform’s cryptocurrencies.
Terraform, the company behind the failed TerraUSD (UST) stablecoin and Luna token, filed for bankruptcy in January, owing an estimated $40 billion to crypto investors.
The SEC sued Terraform and its founder, Do Kwon, in March 2022, accusing them of defrauding investors in the UST and Luna tokens, which collapsed in May 2022. A jury in Manhattan found Kwon and Terraform liable in April.
Terraform agreed to a $4.47 billion SEC settlement, which the agency said will be collected "only after" Terraform satisfies crypto loss claims as part of its bankruptcy wind-down.
The company said in court filings that it is currently “impossible to estimate” the total value of crypto losses that will be eligible to be paid during the liquidation.
But Terraform estimated that it will be able to pay between $184.5 million and $442.2 million to crypto purchasers and other stakeholders as part of its bankruptcy liquidation.
The SEC had accused Kwon and Terraform of deceiving investors about the stability of UST, which was supposed to maintain a constant $1 price. The SEC also said Kwon falsely claimed that Terraform’s blockchain was used in a popular Korean mobile payment app.
Kwon, who faces related criminal charges in the United States and his native South Korea, has denied wrongdoing. He and Terraform decided to settle with the SEC before a second phase of the trial that would have determined the amount of damages.
The UST and Luna collapses in May 2022 caused a market crash that triggered a wave of bankruptcies in the crypto industry.
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