Terraform Labs Files for Chapter 11 Bankrupty in Delaware

Terraform Labs, the company behind the LUNA and TerraUSD (UST) cryptocurrencies, has filed for voluntary Chapter 11 bankruptcy in Delaware.

In its January 21 filing with the state’s bankruptcy court, the company listed assets and liabilities of between $100 million and $500 million, with between 100 and 199 creditors.

In a statement, the firm said that, “The filing will allow TFL to execute on its business plan while navigating ongoing legal proceedings, including representative litigation pending in Singapore and U.S. litigation involving the Securities and Exchange Commission (SEC).” The firm also stated that it would continue to expand its Web3 business.

Terraform Labs CEO Chris Amani said in a statement that, “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 legal challenges that remain outstanding.”

Along with its founder and former CEO Do Kwon, Terraform Labs faces a civil securities fraud lawsuit from the SEC, linked to the 2022 collapse of its algorithmic stablecoin UST and governance token LUNA. The implosion of Terra’s ecosystem sparked a years-long bear market in crypto as contagion spread throughout the industry.

In December 2023, a judge ruled that Terraform Labs and Do Kwon offered and sold unregistered securities including LUNA and UST, meaning that the question of whether those cryptocurrencies constituted unregistered securities will not be up for debate when the case goes to trial.

Do Kwon is currently serving a four-month sentence in Montenegro for using forged passports in an attempt to leave the country in March; the former Terraform Labs CEO has been the subject of a jurisdictional tug-of-war between prosecutors in the U.S. and his native South Korea.

A federal judge last week agreed to postpone Do Kwon’s SEC trial, after he requested that it be pushed back to enable him to attend, pending his extradition from Montenegro.