SEC Finds TerraformLabs’ Attorney Fee Suspicious

The U.S. Securities and Exchange Commission (SEC) raised concerns about a significant $166 million payment made to the legal representatives of Terraform Labs, characterizing the transaction as “suspicious” and suggesting it was aimed at evading financial liabilities stemming from potential regulatory sanction actions.

SEC Trying to Verify the Accuracy of the Company’s Transfers

In a recent court filing submitted to the Delaware bankruptcy court, the SEC sought to deny Terraform Labs’ engagement of Dentons U.S. LLC as its special counsel. The SEC highlighted that a large amount of funds were transferred to Dentons, and that a total amount of $122 million moved within the 90 days prior to the bankruptcy filing. According to the SEC, this situation increases suspicions of an effort to deplete company assets that could otherwise be directed to resolve any judgment arising from the SEC’s sanction actions.

SEC pointed out that a significant portion of the transferred funds was allocated to the Dentons Advance Fee Deposit, described as an uncertain resource reservoir for legal matters by the SEC. The SEC argued that this serves as a potential “war chest” to prolong Terraform Labs’ legal battle against the SEC.

In addition, SEC noted that a significant part of the payment made to Dentons was already allocated to cover litigation costs and that there remains $81 million in the Dentons Advance Fee Deposit. The SEC contends that Dentons should not be given authority to represent Terraform Labs unless the unused part of the payment is refunded.