The regulatory body raised concerns that Terraform Labs “siphoned” $166 million to a “opaque slush fund” belonging to Dentons, a legal company, in their protest.
In response to the SEC’s objections, Terraform Labs has paid the legal firm Dentons a retainer of $166 million.
The insolvent cryptocurrency company cried out in a court document that the SEC’s objection constituted a “troubling example of government overreach,” with the stated goal of “to disadvantage and distract the opponent on the eve of trial.”
In its objections, which it characterized as “packed with misapplications of law and factual misstatements,” Terraform Labs requested that the court reject the SEC’s claims and grant the legal firm’s retainer status.
While Terraform Labs was in bankruptcy, the SEC raised concerns about the “staggering” $166 million retainer payment it made to Dentons, claiming that the company shouldn’t have been able to engage Dentons or pay for its workers’ legal expenses.
The government official said that there was a possible conflict of interest between the companies as Terraform Labs paid $122 million to Dentons Advance Payment Retainer in the 90 days before it filed for bankruptcy. The money might have been used to repay Terraform Labs’ creditors.
Dentons should not be allowed to represent Terraform Labs until the entire $81 million in the retainer account is returned. The bankruptcy court should have authority to oversee Dentons’ fees.
Terraform Labs asserts in its Monday filing that it must incur costs and pay fees in order to defend itself in litigation “that threatens its ability to operate as a going concern.” This litigation includes an impending civil enforcement action by the SEC and a grand jury investigation in the Southern District of New York (SDNY).
The crypto firm’s legal team alleged that the company would be “significantly hindered” in its capacity to defend itself from the government’s serious accusations if the court did not rule against the SEC’s objections.
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