US Bankruptcy Judge Authorizes Terraform Labs’ Legal Hire of Dentons

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Dentons Appointed Defense for Terraform Labs in SEC Lawsuit
  • Terraform Labs gains court approval to hire Dentons for its defense against an SEC lawsuit.
  • Dentons agrees to refund $48M of the legal fees pre-paid by Terraform.
  • Despite settling most legal expense disputes, Terraform faces continued scrutiny over funds allocated for founder Do Kwon’s legal defense.

In a legal development, Terraform Labs has secured approval from a U.S. bankruptcy judge to appoint Dentons for its defense against a lawsuit filed by the U.S. SEC. This decision came after Dentons agreed to refund $48 million of the legal fees pre-paid by Terraform.

The ruling, delivered by Judge Brendan Shannon in Wilmington, Delaware, underscored the importance of Terraform’s legal representation as a justified expenditure of the company’s constrained resources.

The controversy surrounding Dentons’ substantial retainer involved objections from Terraform’s creditors, the SEC, and the Office of the U.S. Trustee. Critics argued that Terraform’s transfer of $166 million to Dentons since early 2023 diverted crucial funds from creditors and evaded bankruptcy court supervision. According to a report by Reuters, the concerns centered on the more than $70 million in advance legal fees still held by Dentons.

To alleviate these objections, Dentons committed to returning $48 million to Terraform. The agreement also includes provisions for enhanced oversight by Terraform’s bankruptcy court over Dentons’ future legal services, which may extend to potential appeals in the SEC lawsuit. 

Despite these concessions, Dentons retains a portion of the initial retainer to cover legal expenses for an imminent trial. This trial aims to ascertain the financial penalties Terraform Labs will face following a federal judge’s finding in December that the company and its founder, Do Kwon, breached U.S. law by not registering two digital currencies that significantly disrupted the crypto market in 2022.

Besides, the SEC has accused Terraform of causing $40 billion in damages, a sum vastly exceeding the company’s assets. While Terraform managed to settle most disputes over its legal expenditures prior to the hearing, the U.S. Trustee’s opposition to Terraform reimbursing another law firm aiding Kwon, currently detained in Montenegro, persists.

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