The U.S. Securities and Exchange Commission asked the Delaware Bankruptcy Court to deny Terraform Labs’ retaining Dentons US LLC as special counsel, alleging “suspicious” payments were made to Dentons in a filing Tuesday.
The SEC said in the filing that Terraform Labs transferred a “staggering” $166 million to Dentons Advance Payment Retainer, $122 million of which was transferred within 90 days before the bankruptcy filing. The SEC argued that the action appears aimed at stripping the company of assets that could be used to pay judgments resulting from the agency’s enforcement actions.
The agency alleged that $122 million was transferred to an “opaque slush fund” for lawyers, which Terraform Labs could use as a “war chest” to continue its legal battle against the SEC.
More than half of the money paid to Dentons has already been used to cover litigation costs, with $81 million remaining in Dentons Advance Payment Retainer, according to the filing. The SEC argued that Dentons should not be authorized to represent Terraform Labs unless it returns the remaining amount.
The regulator added that Dentons’ advance retainage money appears to have been used to cover bills for counseling Montenegro’s former Terra CEO Do-Hyung Kwon’s criminal conduct unrelated to his work at Terraform Labs.
The SEC also asked the court to appoint a fee examiner into the retention payments, which it said were questionable in timing and amount.
Terraform Labs did not immediately respond to The Block’s request for comment.
Chapter 11 Bankruptcy
Submitted by Terraform Labs Chapter 11 Bankruptcy According to documents submitted at the time, on January 21st, the U.S. Bankruptcy Court for the District of Delaware found that its estimated assets and liabilities were between $100 million and $500 million. that said in january Bankruptcy protection allows a company to file an appeal with the SEC.
The company was behind algorithmic stablecoin TerraUSD and sister cryptocurrency Luna, which both collapsed in May 2022. SEC charged Mr. Kwon was arrested in Montenegro in March of last year and is currently awaiting extradition.
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