Terraform Labs, the company behind the Terra blockchain protocol, received court approval on Thursday to wind down its operations following a Chapter 11 bankruptcy filing in January. The approval comes after a critical hearing on September 19 that addressed the firm’s ongoing legal challenges and financial troubles.
U.S. Bankruptcy Judge Brendan Shannon sanctioned the bankruptcy plan during a session in Wilmington, Delaware. Terraform Labs had previously reached a $4.47 billion settlement with the U.S. Securities and Exchange Commission (SEC), which initially sought $5.3 billion from the company in April.
Judge Shannon referred to the ruling as a “welcome alternative” to further litigation, which could have exacerbated the significant losses faced by investors. After the bankruptcy liquidation, Terraform Labs is estimated to settle with creditors and stakeholders for between $184.5 million and $442.2 million.
Current CEO Chris Amani indicated in June via X that the company always intended to dissolve and is now proceeding with a complete closure of operations.
While the SEC will eventually collect on the settlement, it will only do so after Terraform Labs resolves its obligations to creditors. The company has stated it is “impossible to estimate” the total value of crypto losses eligible for payout during liquidation, emphasizing that the figures provided are merely estimates.
The SEC accused Terraform Labs and CEO Do Kwon of defrauding investors through a multi-billion dollar cryptocurrency scheme. The collapse of Terraform’s TerraUSD and Luna stablecoins wiped out approximately $60 billion from investors’ portfolios.
Kwon evaded authorities for months after the crash, hiding across Europe and Asia, before being apprehended in Montenegro last spring. He is currently awaiting potential extradition to either the U.S. or South Korea. Montenegro’s Supreme Court is expected to decide this month on whether any legal violations occurred during Kwon’s extradition process.
