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The United States Securities and Exchange Commission (SEC) has identified Terraform Labs’ $166 million in payments to Dentons since 2023.
In a recent filing, the financial authority opposed the retainer payment to the law firm, contending that Terraform Labs should not engage their services during the trial, as reported by Reuters.
SEC targets bankrupt Terraform Labs’ $166 million ‘slush fund’ for Dentons https://t.co/LDY9z1F5RC pic.twitter.com/oVYIUooNiP
— Reuters (@Reuters) February 29, 2024
The SEC claimed that Terraform Labs has disbursed $166 million to the attorneys as a retainer since 2023, suggesting that these amounts may be intended to evade a future judgment in the substantive lawsuit.
It was revealed that $122 million was paid 90 days prior to the company’s bankruptcy filing and was labeled as “an opaque slush fund.” These funds could also serve as a financial reserve in the ongoing legal dispute with the SEC.
SEC Proposes Funds Should be Allocated to Compensate Investors
The regulator proposed that the amount could be redirected to reimburse creditors and investors who suffered losses following the bankruptcy filing.
Terraform Labs had earlier requested the court’s approval to engage Dentons as special counsel, with costs reaching $6.3 million. The legal expenses include $3.25 million designated for employees’ legal fees. Additional payments by the firm consist of $1.3 million for a pending lawsuit in the UK.
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Terraform Labs asserts that information gathered from the lawsuit will aid in its defense against the SEC. Despite the ongoing lawsuits, the SEC contended that substantial payments to the firm could compromise the transparency of the company’s expenditures. Moreover, investors could benefit if the funds are allocated in this manner.
The regulator also highlighted a possible conflict of interest between Dentons and Terraform Labs, particularly concerning the distribution of funds to investors.
“The SEC stated that none of those payments should be permitted without increased oversight from the bankruptcy court, arguing that Terraform’s “staggering” retainer payment has undermined the bankruptcy court’s insight into Terraform’s financial activities,” Reuters reported.
According to written submissions, the regulator urged the court to prevent Dentons from representing Terraform Labs until the firm reimburses $81 million remaining in the retainer account.
Former Terraform Labs CEO Involved
Future expenses incurred by the company should also be subject to the court’s scrutiny to limit amounts payable to investors and to safeguard the company’s assets.
In a development that connects its former CEO to the situation, the SEC alleged that the funds in the Denton Advance Payment Retainer could be utilized to settle the legal fees of Do Kwon in Montenegro.
The bankruptcy court in Delaware will address the dispute on March 5 as investors await the recovery of their losses. In 2022, Terra’s stablecoin lost its peg to the dollar, leading to extensive industry losses that contributed to the crypto bear market.
Both the United States and South Korea are seeking to extradite Do Kwon to face charges. However, a judge in Montenegro ruled in favor of the US regarding Do Kwon’s extradition, where his trial is scheduled to commence next month.
The post SEC Flags Terraform Labs’ $166 Million Payment to Lawyers – What’s Going On? appeared first on Cryptonews.
