In January, Terraform Labs <a href="https://news.todayq.com/do-kwon-founder-of-terraform-labs-appeals-extradition-report/" target="_blank" rel="noopener noreferrer nofollow">(TFL)</a>, the company behind the stablecoin TerraUSD, faced big financial trouble and had to ask for Chapter 11 bankruptcy protection in the US. Now, the government’s Securities &amp; Exchange Commission (SEC) said Terraform Labs shouldn’t be allowed to use law firm Dentons or cover legal fees for its staff while going through bankruptcy. They particularly targeted a $166 million payment to Terraform’s lawyers. SEC’s objections 
Securities and Exchange Commission (SEC) has urged the Delaware bankruptcy court to reject Terraform Labs’ choice of Dentons US LLC as its special counsel. In a filing submitted Tuesday, the SEC claimed that the amount paid to Dentons appears “suspicious.”
During the 90-day period before filing for bankruptcy, Terraform Labs transferred 2 million of its 6 million into Dentons’ Advance Payment Retainer.&nbsp;&nbsp;
According to the SEC, this looks like an attempt to move assets out of the company that could otherwise be used to settle enforcement actions. Terraform Labs is accused of channeling money into an “opaque slush fund for its lawyers,” to the detriment of investors and creditors.
Terraform Labs, which sought Chapter 11 protection in January, has stated that its bankruptcy filing will allow it to challenge a December ruling that partially favored the SEC in its securities fraud case. A federal judge determined that Terraform Labs and its founder Do Kwon breached US law by not registering two digital currencies, whose collapse caused buzz in crypto markets in 2022. How will the money be used? 
The judge hasn’t decided how much Terraform must pay yet, but the company warned it might owe more than it owns. After going <a href="https://news.todayq.com/dcg-objects-in-bankruptcy-court-to-genesis-settlement-with-nyag/" target="_blank" rel="noopener noreferrer nofollow">bankrupt</a>, Terraform asked the court for permission to hire Dentons as special lawyers and pay $6.3 million for legal fees for employees and partners dealing with lawsuits. About $3.25 million of that would go to staff’s legal bills, as per Terraform’s court papers.
Terraform also wants to use around $1.33 million to keep a lawsuit in the UK going, hoping it will help their defense in the SEC lawsuit. Most of the money paid to Dentons has already gone to cover legal expenses, leaving $81 million in the account. The SEC argued that Dentons shouldn’t represent Terraform unless it gives back the leftover money.
SEC thinks the remaining Dentons money was used for Terra’s ex-CEO’s legal issues in Montenegro, not related to his work at Terraform. They asked the court to appoint someone to check the fee, saying it looks ‘sus’ in timing and amount.
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Terraforms Lab’s $166M lawyer expense under SEC scrutiny

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