SEC releases Terraform compensation announcement: investors and creditors will be compensated first

Original author: Natalia Wu, BlockTempo

In 2022, the public chain Terras LUNA and UST collapsed, causing global investors to suffer economic losses of US$40 billion. 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 fines of $4.47 billion and $200 million respectively in exchange for a settlement with the SEC. However, the question that investors who suffered heavy losses in Terras collapse are most concerned about: when can they get compensation? This question has not yet been answered.

How do Terra disaster victims get compensation?

In response, the SEC issued an announcement on the 26th to respond to questions about how to obtain 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, estimating that its assets and liabilities were between $100 million and $500 million, and the number of creditors was 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 Terraforms remaining assets and pay compensation to Terraforms creditors and investors who have been harmed by Terraforms crypto asset securities (referring to tokens such as LUNA issued by the company).

The courts final judgment ruled that Terraform owed $4.47 billion in illegal gains, prejudgment interest, and civil penalties. Do Kwon was required to transfer at least $204 million to Terraforms bankruptcy estate for distribution to investors whose funds were damaged, including $7 million in cash and all crypto assets of the Luna Foundation Guard.

The SEC stressed that “the SEC will not receive any payment until investors and creditors are fully compensated in the bankruptcy case.”

Terraform bankruptcy plan expected in fall

The SEC added that the bankruptcy liquidation plan filed in the Terraform Labs bankruptcy case will provide for the recovery rights of all creditors and damaged investors. Creditors and damaged investors will have the opportunity to review Terraforms 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.epiq1 1.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 is reported at $0.385, which has fallen nearly 70% from this years high of $1.26.

Source: Trading View

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