Recent developments of the company’s bankruptcy battle include its lawyers consenting a refund
Entangled in a legal battle with the US Securities & Exchange Commission (SEC), Terraform Labs has overcome a significant legal hurdle as a US bankruptcy judge granted permission for the company to retain Dentons, reports Reuters. The decision, handed down by US Bankruptcy Judge Brendan Shannon, comes with a notable twist: Dentons has agreed to refund $48 million of the substantial retainer Terraform had initially provided.
This development is pivotal in Terraform’s ongoing struggle, allowing it to defend against the SEC lawsuit. Judge Shannon justified the decision, deeming Terraform’s allocation of funds for legal defence as “necessary” and “appropriate” considering the company’s financial constraints.
However, Dentons’ hefty retainer had raised eyebrows, prompting objections from various quarters, including Terraform’s creditors, the SEC, and the Office of the US Trustee. Allegations surfaced that Terraform’s payment to Dentons was an attempt to divert significant cash away from creditors and circumvent bankruptcy court scrutiny. Documents revealed that Terraform had disbursed $166 million to Dentons since the onset of 2023, with over $70 million still held in advance legal fees.
To assuage concerns, Dentons agreed to refund $48 million to Terraform and subject its future legal endeavours, including a potential appeal in the SEC case, to closer oversight by Terraform’s bankruptcy court. Dentons will retain a portion of the retainer to cover legal expenses for an impending trial determining Terraform’s liability in a securities fraud lawsuit filed by the SEC.
Concerns over legal fees amid bankruptcy proceedings
Last December, a federal judge ruled that Terraform Labs and its founder, Do Kwon, breached US law by neglecting to register two digital currencies, causing upheaval in cryptocurrency markets in 2022. Although the SEC contends damages amounting to $40 billion, surpassing Terraform Labs’ assets, the exact sum remains undetermined.
Amidst the legal maneuvering, Terraform faced continued opposition from the US Trustee, particularly concerning reimbursement payments totalling around $733,000 to a law firm assisting Kwon, currently incarcerated in Montenegro. Terraform defended the expenditure, emphasizing the necessity of collaborating with Kwon’s attorneys to access crucial information for its defence. During a recent hearing, Terraform’s attorney, Ronit Berkovich, asserted that impeding the company’s defence against a government lawsuit was untenable.
The judge sided with Terraform, dismissing the US Trustee’s objection and affirming the appropriateness of Terraform’s proposed payments to the law firm.
The case, In re Terraform Labs, is ongoing in the US Bankruptcy Court for the District of Delaware. Notable legal representatives involved in the case include Ronit Berkovich, Christine Calabrese, and Jared Friedmann of Weil, Gotshal & Manges representing Terraform Labs; Therese Scheuer and William Uptegrove representing the SEC; Darren Azman representing the creditors committee; and Linda Richenderfer representing the Office of the US Trustee.
