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US Bankruptcy Court Approves Terraform Labs Retaining Dentons Despite Opposition
A US bankruptcy court has recently granted approval for Terraform Labs to retain law firm Dentons, a decision that has sparked concerns among the company’s creditors and regulatory bodies, including the SEC. This development follows Dentons’ commitment to refund $48 million to Terraform, a significant portion of the retainer fee previously paid to the firm for legal services. The decision represents a strategic victory for the embattled blockchain company amidst ongoing financial challenges.
Judge Brendan Shannon, who presided over the hearing, emphasized the importance of allocating financial resources towards legal defense for Terraform Labs, considering the company’s constrained financial situation.
Controversy and Addressing Concerns
The engagement of Dentons had initially raised eyebrows among various stakeholders due to the substantial pre-payment of $166 million made to the law firm since early 2023. Critics argued that such payments diverted essential resources away from creditors and circumvented oversight from the bankruptcy court.
As a response to these concerns, Dentons has agreed to return $48 million to Terraform and has committed to subjecting any future legal services, particularly those related to the SEC lawsuit and potential appeals, to thorough scrutiny by the bankruptcy court. This agreement aims to strike a balance between Terraform’s need for top-tier legal representation and the imperative to preserve financial resources for creditor repayment and operational sustainability.
Collaboration with Kwon’s Legal Team
Amidst the challenges posed by the bankruptcy and legal defense proceedings, Terraform has made progress in resolving objections to its legal expenditures leading up to the recent court ruling. However, the US Trustee’s office raised an issue regarding the company’s plan to reimburse approximately $733,000 to a law firm representing Terra founder Do Kwon in Montenegro.
Terraform’s defense team argued that cooperation with Kwon’s Montenegrin lawyers was essential to gather crucial information for their defense strategy against the SEC. Judge Shannon supported this argument and dismissed the concerns raised by the US Trustee’s office, deeming the financial arrangement with law firm Rodic as appropriate.
The legal challenges faced by Terraform Labs stem from a federal court ruling in December, which found that the company and its founders had violated US securities law by failing to register two digital currencies. The repercussions of the collapse of these tokens in 2022 reverberated throughout the crypto markets, resulting in a $40 billion fallout. The SEC’s allegations against Terraform underscore the severity of the charges and the potential financial liabilities that far exceed the company’s available assets.
In response to these challenges, the firm filed for Chapter 11 bankruptcy in January. While Kwon was initially expected to be present at the trial, recent developments indicate that he is likely to be extradited to South Korea, his home country, after nearly a year of legal proceedings.
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