SEC Alleges Terraform Labs Diverted $166M Ahead of Court Decisions

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The SEC accused Terraform Labs of transferring $166 million to Dentons U.S. LLC, a law firm, disguised as an Advance Retainer Payment. The SEC alleges this was an attempt to move assets away from the company before any court decisions.

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While acknowledging Dentons as legal counsel, the SEC deemed the amount transferred as “extraordinary,” taking action to protect Terraform Lab’s assets due to inadequate disclosures and bankruptcy regulation non-compliance.



SEC Accuses Terraform Labs of Suspicious Fund Transfers

The SEC revealed that Terraform Labs had transferred $122 million to Dentons within 90 days before filing for bankruptcy, a timing the SEC considers suspicious. The commission alleged that these funds were channeled into a fund for the debtor’s legal team, serving as a “war chest” to support its defense against the SEC, to the detriment of its creditors.

Furthermore, the SEC argued that the assets transferred could be proceeds of the conduct alleged to have violated the law, as previously found by the District Court. While a significant portion of the payment covered legal expenses, an outstanding balance of $81 million remains with Dentons.

Consequently, the SEC demanded the reimbursement of the remaining sum to Terraform Labs’ account before Dentons could represent them further. Additionally, the SEC urged the appointment of a fee examiner to scrutinize the application and associated payments.

Legal Woes Surrounding Terraform’s Former CEO

Legal documents revealed that Dentons, the law firm representing Terraform Labs, also represents the company’s former CEO, Do Kwon, who faces legal troubles across multiple jurisdictions.

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Kwon’s current situation involves serving a four-month prison sentence in Montenegro for traveling with forged documents. Recently, a High Court approved his extradition to the US from his home country, South Korea. However, due to legal complexities, his extradition seems unlikely before his SEC trials commence.

The SEC’s Allegations Against Kwon

Kwon’s legal issues with the SEC originate from allegations of misconduct related to the May 2022 collapse of Terra/Luna. The SEC accuses Kwon and Terraform of misleading investors regarding the stability of the failed TerraUSD algorithmic stablecoin.


Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.

 

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