US Judge Brendan Shannon has approved the bankrupt crypto firm Terraform Labs’ request to engage Dentons for legal representation, as reported by Reuters.
During a bankruptcy court session in Wilmington, Delaware, Shannon endorsed the hiring, considering Terraform’s legal expenditure as a necessary and appropriate utilization of the company’s strained financial assets.
Despite objections from the SEC and Terraform’s creditors, who argued that it diverted funds away from them, Shannon sanctioned Terraform Labs’ payment of $166 million in legal fees to Dentons since the start of 2023.
In an attempt to address concerns, Dentons agreed to refund $48 million to Terraform and subject its future legal activities to increased scrutiny by the bankruptcy court.
According to court records, Dentons will retain a portion of the remaining retainer to cover expenses for a trial determining any penalties Terraform may face due to the SEC’s securities fraud lawsuit against it.
Terraform’s legal challenges pose a formidable task for Dentons, as they not only involve significant financial compensation but also face scrutiny in ongoing lawsuits between crypto companies and regulatory bodies like the SEC.
In December, a federal judge ruled that Terraform Labs and its founder, Do Kwon, breached US securities laws by failing to register their primary assets—the now-defunct UST and LUNA (LUNC) cryptocurrencies—as securities offerings.
The incident stemmed from issues with LUNA V1, which was crucial in pegging Terra’s flagship cryptocurrency, UST, to the US dollar. Despite initial confidence, UST encountered difficulties when a burn/mint mechanism failure triggered a hyperinflationary spiral in May 2022.
This crisis had widespread repercussions, leading to bankruptcies within Terra’s ecosystem and causing billions of dollars in damages, according to the SEC’s claims.
As Terraform navigates these legal challenges, the involvement of Dentons underscores the complexity and high stakes involved in defending against regulatory scrutiny and potential financial penalties.