Terraform Labs, the company behind the collapsed TerraUSD and Luna cryptocurrencies, has received court approval to wind down its operations. The decision comes after the company reached a settlement with the U.S. Securities and Exchange Commission (SEC) over allegations of defrauding investors.
In a hearing on Thursday, U.S. Bankruptcy Judge Brendan Shannon approved Terraform’s bankruptcy plan, calling it a “welcome alternative” to further litigation. The company had filed for bankruptcy in January following the collapse of its cryptocurrencies, which led to an estimated $40 billion in investor losses.
As part of the settlement, Terraform agreed to pay a $4.47 billion penalty to the SEC. However, due to the nature of the settlement, the agency is expected to receive little, if anything, from this amount. The SEC has agreed to be paid only after Terraform satisfies crypto loss claims as part of its bankruptcy wind-down.
Terraform estimates that it will be able to pay between $184.5 million and $442.2 million to crypto purchasers and other stakeholders during the liquidation process. The company said it is currently “impossible to estimate” the total value of crypto losses that will be eligible for payment.
The SEC had accused Terraform and its founder, Do Kwon, of deceiving investors about the stability of TerraUSD and falsely claiming that Terraform’s blockchain was used in a popular Korean mobile payment app. A jury found Kwon and Terraform liable on civil fraud charges at trial, and Kwon and Terraform decided to settle with the SEC before the second phase of the trial that would have determined the amount of damages.
Kwon still faces related criminal charges in both the United States and South Korea. He has denied wrongdoing.
The collapse of TerraUSD and Luna in May 2022 triggered a market crash that led to a wave of bankruptcies in the crypto industry.
