Coinbase Chief Legal Officer Criticizes SEC’s $4.47bn Unsecured Claim, Arguing It Isn’t Fair for Actual Victims
Terraform Labs announced it would dissolve shortly after news of the $4.47bn settlement with the SEC.
- Coinbase’s CLO argues the SEC’s $4.47 billion claim won’t help Terra’s actual victims.
- Do Kwon has reportedly surrendered only $7 million, which is insufficient to compensate victims.
- Terraform’s assets ($100-$500M), which may include LFG reserves ($146M), raise concerns about payment priorities, with the SEC as an unsecured creditor.
- Terraform Labs CEO announces their plan to dissolve, urging the community to take over the blockchain.
While Terraform Labs and Do Kwon’s $4.47 billion settlement with the SEC may seem positive, Coinbase’s Chief Legal Officer argues it won’t benefit anyone.
Do Kwon has reportedly surrendered $7 million worth of assets, but according to CLO Paul Grewal, the lawsuit makes the SEC an unsecured creditor meaning victims might not see the money.
Following Terra’s collapse, which resulted in over $40 billion in losses, the settlement requires them to pay the SEC $3.58 billion in disgorgement and $420 million in civil penalties.
Chainlink community liaison Zach Rynes questioned why the funds were directed to the government agency instead of compensating Terra’s victims.
Terraform Labs CEO Chris Amani urged the community to take control of the Terra blockchains and announced plans to sell projects and burn unvested Luna tokens.
SEC’s New Role as an Unsecured Creditor
“Such disgorgement and civil penalty shall be treated as an allowed general unsecured claim of the Commission against Terraform in the Bankruptcy Case, in the amount of $4,473,828,306”
In bankruptcy proceedings, secured creditors are paid first, followed by unsecured creditors, and finally, equity holders.
According to the official court documents and comments by Paul Grewal, the SEC is considered an unsecured creditor. This means the SEC will be paid before equity holders or the actual victims.
How Much Money Do Terra and Do Kwon Have?
One of the remaining funds associated with Do Kwon and Terra is through the Luna Foundation Guard (LFG) Reserves, which currently hold a total balance of $146.18 million, with 43.7% in AVAX.
In its January 21 bankruptcy filing, Terraform Labs disclosed assets ranging between $100 million and $500 million and identified approximately 100 to 199 creditors. The filing included a list of the top 15 creditors with unsecured claims, among which was the SEC, noted as having an “undetermined” claim at that time.
A detailed list of secured creditors is needed to determine who will be paid before the SEC. However, since the SEC holds an unsecured claim, crypto holders, considered equity holders, will likely be paid last.
Terraform Labs developer and CEO Chris Amani announces that the firm plans to dissolve following the SEC’s $4.47 billion settlement. This includes burning all unvested Luna and anything left vested in their wallets.
