The company filed for Chapter 11 Bankruptcy in the US.
Terraform Labs was behind the TerraUSD and Luna tokens, which dramatically crashed in May 2022, leading to significant losses in the cryptocurrency market.
The collapse of these tokens, particularly Luna, which plummeted from a high of $116 to almost nothing in just 48 hours, was a major contributor to the 2022 “cryptocrash.” This crash had a ripple effect, causing widespread fear and leading to approximately $400 billion being wiped off the value of other cryptocurrencies including Bitcoin.
Terraform Labs co-founder, Do Kwon, is facing legal troubles on multiple fronts. He is currently in jail in Montenegro after a conviction for forging documents. He has also been charged with defrauding investors by U.S. regulators and is awaiting possible extradition.
Kwon also faces fraud charges in his native country South Korea, as well as an ongoing legal case in Singapore where Terraform Labs is registered.
Despite these challenges, Terraform Labs, which offers blockchain and Web3-related services, has filed for Chapter 11 bankruptcy in the U.S. This type of bankruptcy allows the company to continue operating while resolving its legal issues.
According to its bankruptcy documents the company has assets between $100 million and $500 million.
CEO Chris Amani told media the bankruptcy filing is necessary for the company to continue working towards its goals and resolving legal challenges. Terraform Labs plans to meet all financial obligations to employees and vendors during this period without requiring additional financing, he said.
Do Kwon owns 92% of Terraform Labs’ shares, with the remainder owned by co-founder Daniel Hyunsung Shin.
In March 2023 Kwon was arrested in Montenegro as he attempted to board a plane to Dubai and was later found guilty of forging documents, a charge he denied. Terraform’s former finance officer, Han Chang-joon, was also sentenced to prison on similar charges.
A decision on Kwon’s extradition, whether to South Korea or the US, is still pending.