The United States Securities and Exchange Commission (SEC) is suing Terraform Labs and its founder, Do Kwon, over the May 2022 collapse of Terra. The SEC alleges that spending a substantial sum on lawyers was an effort to evade repaying creditors.
Additionally, the SEC opposed Terraform Labs’ $166 million retainer payment to law firm giant Dentons.
Terraform Labs Accused of Overspending on Legal Fees
In a recent court filing, the US SEC accused Terraform Labs of misusing a significant sum of $166 million, which could have been utilized to repay investors and creditors.
“Had the Debtor not filed for chapter 11 protection, the SEC would have had no say or behind-the-curtain visibility into the Debtor’s conduct of its own defense, including its decision to pay the Employee Counsel Fees and Expenses in furtherance thereof.”
Terraform Labs founder Do Kwon. Source: LinkedIn
However, Terraform Labs seeks permission from the court to pay all necessary legal expenses that cause a threat to its daily business operations.
“The Debtor seeks Court authority to pay fees and expenses that are necessary to the Debtor’s defense to litigation that threatens its ability to continue to operate as a going concern—specifically, the action commenced by the US Securities and Exchange Commission (SEC).”
Additionally, Terraform Labs asserts that the SEC’s objection is presented as a concern from creditors.
Read more: What Is Terra (LUNA)?
However, allege it is merely a pretext for its true intention, which is,
“To disadvantage and distract an adversary on the eve of trial.”
Terraform Labs and SEC Dramas Continue
This comes amid there being difficulties with extraditing Kwon in time for his sentencing trial. The trial has already been pushed back.
Kwon’s lawyer, David Patton, confirmed that Kwon would not consider altering the trial date, which is set for March 25. This is irrespective of the progress of the extradition process in the upcoming weeks.
The Appeals Court of Montenegro reversed the decision of the High Court for the extradition of Do Kwon to the United States. This came in response to an appeal from his legal defense team.
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Meanwhile, Terraform Labs CEO Chris Amani recently declared that the company is not built to currently generate profits. This comes amid citing previous crypto collapses to support its case.
Amani further declared that entering bankruptcy positions Terraform Labs to bounce back. He further explains it will allow the firm to re-enter the crypto industry more robustly than before.
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