Terraform Labs, a cryptocurrency firm, has taken legal action against the US Securities and Exchange Commission (SEC) regarding the SEC’s objection to a $166 million payment made to special litigation counsel Dentons. The SEC raised concerns that the substantial payment was an attempt by Terraform Labs to avoid paying its creditors. However, Terraform Labs disputed this assertion, labeling the SEC’s objection as “government overreach” aimed at distracting and disadvantaging them.
Terraform Labs is currently facing various legal challenges, including a civil enforcement action and a grand jury investigation in the Southern District of New York (SDNY). They argue that the requested relief from the court would enable them to develop legal strategies and gather essential information for their defense against the SEC Enforcement Action.
The defunct crypto firm is seeking court permission to override the SEC’s objection and settle its legal fees, emphasizing that the objection threatens its ongoing business operations. Dentons, the legal counsel, stressed that Terraform Labs’ ability to defend itself would be significantly impacted if the objection is not overruled.
However, the SEC maintains that Terraform Labs should not be permitted to settle its legal fees, especially considering the significant payment made to Dentons shortly before filing for bankruptcy. The SEC highlights a potential conflict of interest and suggests that Dentons should only represent Terraform Labs if the funds are returned to the retainer account.
Terraform Labs has also sought to hire outside counsel and allocate funds for employees and external partners’ legal bills. The company faced turmoil in 2022 following the collapse of its stablecoins, TerraUSD (UST), and LUNA cryptocurrencies, leading to legal challenges and the imprisonment of its founder, Do Kwon, and former CFO Chang-joon Han.
Kwon’s extradition case between the US and Montenegro is ongoing, with recent developments overturning the previous ruling and leading to a retrial. Han has already been extradited to South Korea.