In mid-2022, the Terra platform suffered a massive collapse, resulting in over $40 billion in losses for investors. Nearly two years later, clients and creditors are still awaiting compensation. Finally, there's been progress in the case, though investors continue to feel disheartened.
Following his arrest in Montenegro, it became evident that Do Kwon could no longer evade justice. Consequently, in June 2024, Terraform Labs and its founder were compelled to formally settle a civil lawsuit with the U.S. Securities and Exchange Commission (SEC).
Investors who endured substantial losses during the protocol's collapse are primarily concerned with direct compensation, not just regulatory actions by the SEC. Fortunately, there's now a glimmer of hope.
In January 2024, Terraform Labs filed for Chapter 11 bankruptcy* in a Delaware court.
*Chapter 11 allows companies to restructure their debts while continuing operations, as they work on a plan to resolve their financial crises.
By the end of July, the SEC released a statement addressing questions from those impacted by Terraform Labs' management decisions. The plan includes establishing a liquidation fund or appointing a trustee to sell off company assets, providing the means to compensate creditors and investors.
Based on initial expert assessments, these assets are currently estimated to be worth between $100 million and $500 million.
The June court ruling on Terraform's bankruptcy stipulates that the company must cover $4.47 billion in debt repayments, interest, and civil penalties. Do Kwon himself is required to contribute at least $204 million to the Terraform Labs' bankruptcy estate*, including $7 million in cash and all crypto assets from the Luna Foundation Guard, in exchange for the SEC dropping its charges.
*The "bankruptcy estate" refers to the aggregate property of the debtor that, by court order, is distributed among creditors.
The SEC notes that it will not receive any payments unless and until investors and creditors are fully compensated.
The company's bankruptcy and potential restructuring plan will be disclosed in the fall of 2024. Creditors and affected investors will then have the opportunity to review the financial status of Terraform Labs and vote on the asset liquidation plan. The deadline for submitting damage claims is set for August 21, 2024.
Amidst this news, the price of LUNA has been rapidly declining. By early August, the asset was trading 69% below its yearly high of $1.26, reflecting investors' skepticism about receiving adequate compensation. This lack of confidence is understandable, given that the company's debts are nearly ten times greater than its current assets.
