Terraform Labs Wins Court Approval to Cease Operations After $40 Billion Collapse

Terraform Labs, the creator of the Terra (LUNA) ecosystem, has received court approval to wind down operations after settling fraud allegations with the U.S. SEC related to the collapse of its TerraUSD stablecoin and LUNA token, which caused $40 billion in losses in 2022.

U.S. Bankruptcy Judge Brendan Shannon’s approval provides an alternative to lengthy litigation. Initially, the SEC sought $4.47 billion from Terraform, but it may recover little, as the focus is on compensating affected investors first.

The bankruptcy plan aims to reimburse investors between $184.5 million and $442.2 million, a figure far lower than total losses, leaving many stakeholders dissatisfied.

The SEC’s charges included misleading claims about TerraUSD’s stability. Terraform and its founder, Do Kwon, were found liable for civil fraud.

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Additionally, Three Arrows Capital’s liquidators have filed a $1.3 billion lawsuit against Terraform, alleging market manipulation.

As Terraform navigates bankruptcy, Kwon faces extradition proceedings in Montenegro following his 2022 arrest, with the U.S. and South Korea seeking his extradition due to his involvement in the fraud and collapse of the Terra ecosystem.