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<a href="https://crypto.news/terraform-labs-do-kwon-to-miss-start-of-sec-trial-report-says/" rel="noopener noreferrer nofollow">Do Kwon</a>’s Terraform Labs, the company responsible for the collapsed Terra cryptocurrency project, is currently entangled in a legal dispute with the U.S. Securities and Exchange Commission (SEC) regarding accusations of a $166 million “slush fund,” as its bankruptcy proceedings continue.
The U.S. Securities &amp; Exchange Commission (<a href="https://crypto.news/sec-postpones-decision-on-blackrock-and-fidelitys-ethereum-spot-etf/" rel="noopener noreferrer nofollow">SEC</a>) has contended that Terraform Labs should not be permitted to continue to engage the services of law firm Dentons or cover litigation expenses for its employees during its ongoing bankruptcy proceedings.&nbsp;This objection is rooted in a $166 million retainer payment made to Terraform’s lawyers.
On Feb. 29, the SEC filed a <a href="https://document.epiq11.com/document/getdocumentbycode?docId=4302758&amp;projectCode=TEF&amp;source=DM" target="_blank" rel="noopener noreferrer nofollow">request</a> with the court to deny Terraform Labs’ retention of Dentons as its legal counsel, citing concerns over the company’s $166 million payment to lawyers. The SEC alleged that a portion of this sum was transferred to what they referred to as “an opaque slush fund,” suggesting that the transfer was a deliberate attempt to evade potential judgments from its enforcement action.&nbsp;
In a <a href="https://document.epiq11.com/document/getdocumentbycode?docId=4302758&amp;projectCode=TEF&amp;source=DM" target="_blank" rel="noopener noreferrer nofollow">filing</a> submitted on March 4, Terraform Labs reiterated its need for authority to pay legal expenses, stating that it is crucial for defending against the SEC’s litigation and complying with the ongoing Department of Justice (DOJ) investigation. The company has decried governmental overreach and asserted that the funds were utilized for legitimate expenses associated with its legal defence, not personal enrichment.
The company further argued that the SEC’s objections stem from a misunderstanding of the funds and an unfair attempt to limit its access to legal representation. According to the company, the SEC’s true agenda is to divert focus and distract it ahead of the March 25 trial.
Furthermore, Terraform Labs argued that the SEC’s accusations regarding Dentons’ retention involve incorrect legal interpretations and unsubstantiated claims.
This legal dispute has persisted for months, with the SEC maintaining its stance against Terraform Labs retaining Dentons or covering employee litigation costs during bankruptcy proceedings.&nbsp;
Additionally, the SEC alleges that Terraform Labs transferred approximately $122 million to its attorneys shortly before declaring bankruptcy, using some of it for legal expenses.
Terraform Labs have also refuted these claims, emphasizing that the funds were allocated for valid legal defence costs, not personal gain.
On Jan. 21, Terraform Labs <a href="https://www.deb.uscourts.gov/recently-filed-chapter-1115s" target="_blank" rel="noopener noreferrer nofollow">filed</a> for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware, declaring estimated assets and liabilities between $100 million to $500 million. The company stated at the time that the bankruptcy protection would enable it to pursue an appeal against the SEC.
You might also like: <a href="https://crypto.news/ex-terraform-labs-developer-reportedly-testified-against-do-kwon/ " rel="noopener noreferrer nofollow"> Ex-Terraform Labs developer reportedly testified against Do Kwon </a>
<h2 class="wp-block-heading" id="more-bankruptcies">More bankruptcies</h2>
During the crypto winter of 2022, the global cryptocurrency industry experienced a string of notable <a href="https://www.consumernotice.org/legal/crypto-bankruptcies/" target="_blank" rel="noopener noreferrer nofollow">bankruptcies</a>. This period marked the downfall of numerous high-profile Web3 firms, including Three Arrows Capital (3AC), BlockFi, <a href="https://crypto.news/ftxs-bankman-fried-is-deeply-sorry-for-8b-fraud-pushes-for-shorter-sentence/" rel="noopener noreferrer nofollow">Sam Bankman-Fried</a>‘s FTX, Celsius and a host of others.
FTX, the Bahamas-based cryptocurrency exchange, faced a dramatic <a href="https://crypto.news/ftx-collapse-triggers-regulations-and-more-lay-offs/" rel="noopener noreferrer nofollow">collapse</a> in November 2022, resulting in its bankruptcy filing.
The company’s <a href="https://crypto.news/us-house-committee-to-probe-ftx-collapse-on-december-13-2022/" rel="noopener noreferrer nofollow">downfall</a> was triggered by a lack of proper financial controls plus a surge in customer withdrawals that caused an $8 billion deficit in FTX’s accounts. The bankruptcy filing sent shockwaves through the cryptocurrency industry, underscoring the inherent risks and uncertainties in the market.
The chain of events leading to FTX’s bankruptcy included unsuccessful acquisition attempts by Binance, substantial customer withdrawals, and subsequent suspension of withdrawals by affiliated companies like BlockFi due to their exposure to FTX.
<a href="https://crypto.news/ftx-alameda-deltec-bank-scheme-cash-in-tether-lawsuit/" rel="noopener noreferrer nofollow">Ongoing investigations</a> seek to uncover potential legal violations related to FTX’s financial practices, including misappropriation of customer deposits and misleading financial statements. The aftermath of FTX’s collapse continues to unfold, with discussions revolving around potential restructuring and new ownership for the defunct exchange.
Read more: <a href="https://crypto.news/ftx-galaxy-asset-management-intermediary-bankruptcy/&nbsp; " rel="noopener noreferrer nofollow"> FTX reaffirms Galaxy Asset Management as exclusive intermediary amid bankruptcy chaos </a>

Terraform Labs refutes SEC’s allegations of running an ‘opaque slush fund’

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