The United States Securities and Exchange Commission (SEC) might receive only a fraction of its substantial $4.47 billion settlement with Terraform Labs, raising concerns about the recovery of funds owed to the regulator.
A report by The Wall Street Journal has unveiled that Terraform’s financial status, as of January, showcased assets valued at $430.1 million compared to liabilities amounting to $450.9 million when the company filed for bankruptcy.
Terraform Labs had reached an agreement to pay approximately $4.47 billion to the securities regulator as part of a settlement, as disclosed on June 12. The settlement terms encompass disgorgement fines totaling roughly $3.6 billion, a civil penalty of $420 million, and prejudgment interest nearing $467 million. However, the finalization of the settlement hinges on court approval.
In the hierarchy of bankruptcy proceedings, claims are prioritized, with secured creditors typically receiving payment first, followed by unsecured creditors, often including fines and penalties owed to regulatory bodies such as the SEC. Consequently, the SEC would be required to wait until secured creditors and lenders are compensated before accessing any funds.
In 2023, the SEC initiated legal action against Terraform Labs and its founder, Do Kwon, citing the sale of unregistered securities and fraudulent practices linked to the Terra ecosystem collapse. Kwon’s subsequent arrest in Montenegro has prompted extradition requests from both the U.S. and South Korea.
