Terraform Labs Files for Chapter 11 Bankruptcy

The non-profit organization Terraform Labs (TFL), associated with UST and LUNA, has filed a bankruptcy petition under Chapter 11 of the U.S. Bankruptcy Code.

In December, the Southern District of New York court sided with the U.S. Securities and Exchange Commission (SEC) in its lawsuit against TFL and its founder Do Kwon.

In a summary judgment, Judge Jed Rakoff ruled that the company offered and sold unregistered securities in the form of UST, LUNA, wLUNA, and MIR. He noted that the defendants failed to provide counterarguments, and the MIR tokens “passed the Howey test with flying colors.”

The fraud case will be heard by a jury, as motions for summary judgment from both sides were denied.

Besides the U.S., South Korean authorities have also brought charges against Kwon, including violations of capital markets law.

According to the filing, TFL’s assets are estimated to be between $100 million and $500 million, with liabilities in the same range.

“The filing will allow the company to execute its business plan while conducting ongoing legal proceedings,” the document states.

The list of unsecured creditors includes TQ Ventures and Standard Crypto, with the total number ranging from 100 to 199.

On March 23, 2023, Montenegrin police arrested Kwon and former Terraform Labs CFO Han Chang-Joon as they attempted to fly from Podgorica airport to Dubai using fake passports.

The former head of TFL was placed under house arrest and in June was sentenced to four months in prison for document forgery.

In November, Montenegro’s High Court approved Kwon’s extradition to the U.S. or South Korea, but a month later, an appellate court overturned the decision.

In January 2024, TFL’s co-founder requested a U.S. court to postpone a hearing, as he wished to attend in person but was unable due to extradition delays.

Later, the court granted Kwon’s request and rescheduled the hearing for March 25.