Terraform Labs Says Bankruptcy Filing 'Critical' In Its SEC Lawsuit Appeal

Blockchain company Terraform Labs (TFL) said Tuesday that its bankruptcy filing 10 days ago will help in its bid to appeal a lawsuit filed by the Securities and Exchange Commission (SEC) last year that alleged the crypto company and its founder Do Kwon of a staging a crypto assets fraud.

Terraform Labs CEO Chris Amani wrote in a Tuesday filing at a Delaware Bankruptcy Court that TFL's Chapter 11 bankruptcy was "critical" in its operations ability and should "provide an orderly process for resolving competing claims against it, and pursue an appeal of the SEC Enforcement Action."

"A successful appeal would eliminate the single largest claim against the Debtor, thereby benefiting the Debtor, its creditors, and the community more broadly," he added.

Appealing an SEC case usually requires involved companies to furnish bond. However, filing for Chapter 11 can give Terraform Labs more breathing space as it doesn't need to submit a supersedeas or appeal bond.

Amani noted in the filing that without Chapter 11's protection, the company "would likely have to liquidate after the trial and entry of final judgment."

TFL, which is behind the stablecoin TerraUSD (UST), filed for Chapter 11 bankruptcy on Jan. 21. At the time, the blockchain firm painted the move as a strategic action to ensure that it can continue supporting the Terra ecosystem.

Amani previously said in a press release sent to International Business Times that Chapter 11 was "necessary" to help TFL resolve its legal challenges.

In its lawsuit against Terraform Labs, the SEC accused the cryptocurrency firm and Kwon of orchestrating a "multibillion-dollar crypto asset securities fraud" linked to the UST and Terra (LUNA) tokens.

The lawsuit was filed around nine months after the Terra network crashed when its UST token de-pegged from the dollar, dragging with it the network's native LUNA token.

SEC accused TFL of selling unregistered securities, among other related claims, but the company intends to argue in its appeal that the SEC has no jurisdiction over Terraform since its tokens were not securities.

Meanwhile, TFL's founder Kwon, who is in Montenegro after his extradition to either the United States or South Korea was rejected, will face trial starting March 25 in SEC's lawsuit against the fallen crypto mogul.

Kwon's trial was supposed to start on Jan. 29, but a New York judge delayed the trial following his legal team's request for an adjournment "until mid-March," citing the extradition proceedings in Montenegro that were not moving forward as expected.