Do Kwon’s Terraform Labs Files For U.S. Bankruptcy
Terraform Labs, the blockchain company founded by embattled entrepreneur Do Kwon, has filed for Chapter 11 bankruptcy in a U.S.…
Terraform Labs, the blockchain company founded by embattled entrepreneur Do Kwon, has filed for Chapter 11 bankruptcy in a U.S. court. Singapore-based Terraform is behind TerraUSD (UST) and Luna, two cryptocurrencies that collapsed in dramatic fashion in 2022.
Kwon is imprisoned in Montenegro pending extradition requests from the U.S. and his home country of South Korea. He was arrested for using falsified travel documents and sentenced to four months in jail last November.
A Montenegro judge approved Kwon’s extradition to Korea last November, but an appeals court overturned the ruling shortly after. Another extradition hearing will be held after Kwon completes his jail sentence.
- Terraform filed for Chapter 11 bankruptcy in a Delaware court, listing both assets and liabilities of $100mn to $500mn. The number of creditors is between 100 and 199.
The bankruptcy filing comes days after the U.S. Securities and Exchange Commission (SEC) agreed to postpone a separate civil fraud case against Terraform Labs and its founder, Do Kwon. A federal judge delayed the trial to allow Kwon to be extradited so he could attend. A lawyer representing Kwon claims he has consented to a U.S. extradition and could be in the U.S. by mid-March, though there’s no guarantee.
Terraform Labs is best known for creating Luna, a digital currency, and TerraUSD (UST), a “stablecoin” pegged to Luna and the U.S. dollar through a complex “burn and mint equilibrium” algorithmic model.
Many detractors castigated Kwon’s stablecoin model as risky and resembling a “Ponzi scheme.” In May 2022, UST lost its peg to the U.S. dollar and crashed along with Luna, wiping $45bn of market value.
Kwon was indicted for fraud by South Korean prosecutors shortly after Terra’s collapse. In March 2023, he was arrested in a Montenegro airport for attempting to travel to Dubai with a fake passport.
After Kwon’s arrest, the U.S. Justice Department unveiled eight-count criminal charges, including conspiracy to defraud, commodities fraud, wire fraud, securities fraud, and conspiracy to defraud and engage in market manipulation. The U.S. SEC also unveiled civil fraud charges.
- Terraform Labs remained operating after the spectacular Terra-Luna crash. Early this month, it launched a new cryptocurrency wallet app, and last November, it acquired a cryptocurrency portfolio management platform.
- The company said the bankruptcy filing is “a strategic step that will enable it to continue its operations and support litigation pending in Singapore and U.S. litigation involving the Securities and Exchange Commission.” It also said it would “meet all financial obligations to employees and vendors during the Chapter 11 case” without additional financing.
According to the bankruptcy filing, Kwon owns a 92% stake in Terraform Labs and another founder, Daniel Shin, owns 8%. Shin is present in Korea, facing criminal charges alongside nine other Terraform employees.