Do Kwon’s Terraform Labs has filed for Chapter 11 bankruptcy protection before his pending trial for extradition to the U.S. or South Korea.
The final nail in the coffin appears to have been struck for Do Kwon’s Terraform Labs. The company behind the infamous LUNA crypto token has filed for Chapter 11 bankruptcy protection in the United States, news that has been circulating wildly across the crypto community.
According to a court filing on January 21 2024, the firm filed for Chapter 11 bankruptcy protection at the United States Bankruptcy Court for the District of Delaware. It has been reported that its estimated liabilities and assets currently range between $100 million and $500 million.
CEO of Terraform Labs, Chris Amani, said that the step was necessary to ensure that the firm works toward its goal of resolving its legal challenges. He also reiterated his confidence in the firm’s ability to handle the current adversity, as they had done. He hopes they will eventually find a solution to their ongoing problems.
In his statement to the press, he said: “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 outstanding legal challenges. 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.”
Terra’s founder, Do Kwon, has been on the wrong side of the press since his firm imploded in May 2022. The once highly appraised personality of the crypto community lost his positive image overnight as he decided to flee the country using false documentation.
A search was issued for him as he remained elusive to the U.S. and South Korean law enforcement agencies before he was eventually found in Montenegro, where he was arrested for trying to leave the country using falsified travel documents in March of 2023.
The United States and the South Korean officials have filed to try to get extradition rights for Do Kown to their respective countries. Currently, the Montenegrin court system is reassessing Kwon’s extradition, and the Justice Minister will ultimately decide which country he will be handed over to once the process is complete.
The U.S. and South Korea have requested Montenegro to extend Kwon’s extradition detention while the retrial is pending. The U.S. Securities and Exchange Commission (SEC) postponed Kwon’s trial until April to allow for potential extradition.
The U.S. Securities and Exchange Commission (SEC) charged Do Kwon and Terraform Labs on February 7, 2023, with orchestrating a multi-billion dollar crypto asset securities fraud.
It was alleged by the SEC that TerraUSD (UST) and Luna, the two main currencies in the Terra ecosystem, were securities and should have been registered with the commission. However, Terraform Labs did not write them, potentially violating securities laws.
The SEC also accused Terraform Labs and Kwon of making false and misleading statements about the stability of UST and the Terra ecosystem.
They allegedly hyped their technology and claimed UST was pegged to the U.S. dollar through an algorithmic mechanism. This ultimately proved unsustainable and led to the tokens’ dramatic collapse in May 2022.
Lastly, the SEC alleged that Do Kwon’s inability to warn his investors of the risks regarding UST and LUNA fairly and truthfully violates the Investor Protection Law.
The incident of Terra Luna’s implosion left a significant blemish on the crypto industry. After the implosion, Luna’s price plummeted from over $100 to virtually zero, leading to a loss of around 99.9%.
The algorithmic stablecoin UST lost its peg to the U.S. dollar, dropping to mere cents, and its market cap shrunk dramatically.
The Terra ecosystem crash triggered widespread panic and liquidations across the crypto market, impacting even established coins like Bitcoin and Ethereum.
The declaration of bankruptcy occurred merely four days after the U.S. Securities and Exchange Commission (SEC) consented to a postponement of Kwon’s impending fraud trial until March 25. The decision follows a request from his legal team to extend the proceedings.
Should Kwon be deported to South Korea, he may confront a 40-year imprisonment term where he is accused of committing most of his offences.
