SEC releases Terraform compensation announcement, giving priority to compensating investors and creditors

2024-08-01 09:00

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Original title: "LUNA victims also receive compensation, SEC announces Terraform investment/creditor compensation announcement"

Original author: Natalia Wu, BlockTempo

In mid-2022, the public chain Terra's LUNA and UST exploded, causing global investors to suffer $40 billion in economic losses. Terraform Labs, the developer behind Terra, and its founder Do Kwon officially reached a settlement with the U.S. Securities and Exchange Commission (SEC) on civil litigation in mid-June.

Terraform Labs and Do Kwon agreed to pay $4.47 billion and $200 million in fines respectively in exchange for a settlement with the SEC, but the most concerned question for investors who lost money in Terra's explosion: when can they get compensation? It has not yet been answered.

How can Terra victims get compensation?

In response, the SEC issued an announcement on the 26th to respond to questions about how to get compensation from investors and creditors who were harmed by Terraform Labs. The SEC pointed out that since investors continue to ask the agency whether they can get compensation, the SEC has compiled relevant information to help answer these questions, and said that compensation mainly needs to be handled through the pending "Terraform Labs bankruptcy case."

Terraform Labs filed for Chapter 11 bankruptcy protection in the Delaware Bankruptcy Court in January this year, with estimated assets and liabilities between $100 million and $500 million, and the number of creditors between 100 and 199.

SEC: Creditors and investors will not receive more than $4 billion in fines before compensation

The SEC explained that Terraform Labs will seek approval for a Chapter 11 liquidation plan in its bankruptcy case, which will establish a liquidation trust or property representative to liquidate Terraform's remaining assets and pay compensation to Terraform creditors and investors who have been harmed by Terraform's "crypto-asset securities" (referring to tokens such as LUNA issued by the company).

The court's final judgment ruled that Terraform owed $4.47 billion in ill-gotten gains, prejudgment interest and civil penalties. Do Kwon must transfer at least $204 million to the Terraform bankruptcy estate for distribution to investors whose funds have been damaged, including $7 million in cash and all crypto assets of the Luna Foundation Guard.

The SEC emphasized: "The SEC will not receive any payment until investors and creditors receive full compensation in the bankruptcy case."

Terraform bankruptcy plan is expected to be released in the fall

The SEC added that the bankruptcy liquidation plan filed in the Terraform Labs bankruptcy case will stipulate the recovery rights of all creditors and damaged investors. Creditors and damaged investors will have the opportunity to review Terraform's disclosure statement and liquidation plan and vote on or against the plan.

The liquidation plan hearing and effective date are currently expected to fall in the fall of 2024. The bankruptcy court has not yet determined the procedures and deadlines for how creditors and damaged investors can submit claims for losses related to Terraform's fraud, but will post information to the following website after the plan is approved: https://dm.epiq11.com/case/terraform/info, please continue to track for updates.

LUNA has fallen more than 70% from its high point this year

In terms of currency price, LUNA, which once hit $0.83 at the end of May, has continued to fall in the past two months. At the time of writing, it was reported at $0.385, which is nearly 70% lower than this year's high of $1.26.