SEC Raises Red Flags Over Terraform Labs’ $166M Payment to Lawyers
- SEC contests Terraform Labs’ $166M payment to Dentons, labeling it suspicious.
- The regulator noted that $122 million of the fund was moved within 90 days before the bankruptcy filing.
- Over half of the sum has already been expended to cover litigation costs.
The U.S. Securities and Exchange Commission (SEC) has urged the Delaware bankruptcy court to reject Terraform Labs’ retention of Dentons LLC as its special counsel. This move comes as the SEC raised concerns over a substantial payment of $166 million to Dentons, labeling the transaction “suspicious.”
In a recent filing, the SEC contended that Terraform Labs funneled $166 million into the Dentons Advance Payment Retainer. The regulator noted that a significant portion, $122 million, was transferred within 90 days prior to the bankruptcy filing.
According to the SEC, this maneuver appears to strip assets from the company. It believes the move potentially hinders Terraform Labs’ ability to satisfy judgments resulting from the SEC’s enforcement actions.
Furthermore, the SEC alleges that the funds were transferred to an “opaque slush fund” for legal expenses, impeding the rights of investors and creditors seeking restitution in Terraform’s bankruptcy. While over half of the sum has already been expended to cover litigation costs, $81 million remains within the Dentons Advance Payment Retainer.
Meanwhile, the SEC contends that a portion of the funds was allocated to cover legal expenses related to Terra’s former CEO Kwon Do-hyeong’s criminal proceedings in Montenegro. In response, the SEC has requested the court to appoint a fee examiner to scrutinize the suspicious timing and amount of the retainer payment.
This move comes amid Terraform Labs’ Chapter 11 bankruptcy filing last month. Terraform Labs, the entity behind the ill-fated algorithmic stablecoin TerraUSD and crypto Luna, faces mounting legal challenges following allegations of defrauding investors through unregistered digital currencies.
Its former CEO, Kwon Do-hyeong, is awaiting extradition from Montenegro after his arrest in March last year.
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