Terraform Labs: SEC Settlement Drives Liquidating Plan and Crypto Loss Claims

Terraform Labs’ chapter 11 case is an unusually litigation-driven bankruptcy: the filing was framed as a strategic move to preserve value and centralize creditor and investor recovery mechanics while the company navigated an existential U.S. Securities and Exchange Commission (SEC) enforcement action and other global disputes. Terraform Labs filed chapter 11 in Delaware on January 21, 2024, listing estimated assets and liabilities each in the $100 million to $500 million range and 100–199 creditors.

The case sits in the long tail of the May 2022 collapse of TerraUSD (UST) and LUNA, which was described as wiping out almost $45 billion of market capitalization.

What makes Terraform’s restructuring analytically important for professionals is not a capital structure repair (there was no DIP financing narrative), but the way the chapter 11 process was used as a distribution and governance framework. The SEC’s June 2024 judgment described a package totaling roughly $4.47 billion and required Do Kwon to transfer at least about $204 million of value to the bankruptcy estate. The SEC also stated that distributions to harmed investors were intended to flow through the bankruptcy estate and trust mechanisms through the estate.

The case later moved to a confirmed liquidation plan establishing a Wind Down Trust and a dedicated process for “Crypto Loss Claims,” with repayment estimates described as $185 million to $442 million.

Debtors	Terraform Labs Pte. Ltd.; Terraform Labs Limited (later filed; jointly administered)
Court	U.S. Bankruptcy Court, District of Delaware
Lead case number	24-10070
Judge	Brendan Linehan Shannon
Petition date	January 21, 2024
Estimated balance sheet (at filing)	Assets: $100M–$500M; liabilities: $100M–$500M
Restructuring path	chapter 11 plan of liquidation (Wind Down Trust + claim pools + crypto loss claim procedures)
Confirmation date	September 2024 (confirmation described as entered September 20, 2024)
Effective date	2024-10-01
Core case driver	SEC judgment risk and an estate-based distribution framework June 12, 2024
Claims and noticing agent	Epiq Corporate Restructuring, LLC (bankruptcy filings; do not use claims portal links)

Filing Drivers and Case Posture

Business overview: what Terraform said it was (and wasn’t). Terraform framed itself in bankruptcy filings as a software development company that built and supported the Terra blockchain network and related tools, and it emphasized that it did not operate as a trading platform and did not hold customer funds. That framing matters because it aligns the case with a “technology and IP + litigation exposure” profile rather than a custodial-exchange profile where customer property and segregation questions dominate. Contextually, the product ecosystem was nonetheless inseparable from TerraUSD (UST) and the LUNA token architecture that collapsed in May 2022; standard references describe the network halt and relaunch dynamics Terra blockchain. A profile of Terraform Labs similarly characterizes the company as a software developer focused on the Terra blockchain network and related tools.

SEC Enforcement and Settlement Framework

Why this chapter 11 looked different: enforcement exposure and an “automatic stay as runway” theory. Terraform’s bankruptcy was not marketed as a balance-sheet recapitalization supported by a new-money DIP facility. Instead, it was positioned as a litigation and enforcement-risk management strategy. The SEC stated that a jury found Terraform and Do Kwon liable for securities fraud on April 5, 2024. The SEC also described a judgment package including $3.586 billion in disgorgement, $466.95 million in prejudgment interest, and a $420 million civil penalty, plus a required transfer by Kwon of at least $204.32 million of value to the bankruptcy estate. The combined settlement for Terraform and Kwon was described as about $4.5 billion. In other words, the “big number” in the Terraform story is not traditional funded debt, but the size and structure of the regulatory judgment and the consequent need for a coherent distribution framework.

From a restructuring mechanics perspective, this kind of case creates a different set of gating questions than a typical operating-company chapter 11:

• How does a regulatory claim that is measured in billions translate into an estate that (at least at filing) described assets and liabilities in the hundreds of millions?
• How does the estate build processes to handle investor-claim volume and documentation challenges at scale, especially for claimants whose loss evidence may be on-chain, on centralized exchanges, or in historical account records that were never designed as bankruptcy proof-of-claim exhibits?
• How do plan governance and trust control mechanisms reduce the risk of “post-effective-date drift” while still allowing cost-effective liquidation, claim reconciliation, and distributions?

Terraform’s confirmed plan architecture is designed to answer those questions through a wind-down trust structure and separate claim pools, rather than through a traditional reorganized operating company balance-sheet reset September 2024 plan.

Cross-forum coordination: SEC recovery channeling through the bankruptcy estate. The SEC stated that the final judgment requires distributions to harmed investors to occur through the bankruptcy estate and referenced a liquidating trust as the distribution vehicle distribution page. This is a critical structural fact for professionals because it changes the typical investor-recovery story: rather than a standalone SEC distribution fund with a separate claims submission site and a parallel set of eligibility rules, the bankruptcy plan becomes the coordinating instrument for what is, functionally, a mass-claims and distribution program. The operational complexity shifts to the plan administrator and trust infrastructure, including the plan’s notice procedures, claim forms, evidentiary rules, objections, reconciliation, and final distribution cadence.

The following table is a practical “litigation posture map” that anchors the case chronology and the amounts that shaped the plan’s design. The purpose is not to re-litigate the merits, but to show how the bankruptcy settlement and distribution logic were tied to regulatory outcomes.

Plan Confirmation and Wind Down Trust

Case structure and the multi-debtor posture. Terraform Labs Pte. Ltd. filed the initial chapter 11 petition in January 2024. Bankruptcy filings describe a later-filed affiliate debtor, Terraform Labs Limited, which filed in July 2024 and was later jointly administered with the lead case. That sequencing matters for two practical reasons. First, it suggests that case administration and plan design evolved as corporate structure and asset ownership questions were formalized under bankruptcy court supervision. Second, it indicates that the liquidation plan needed to function as an umbrella framework for multiple legal entities—often a driver of “trust + plan administrator” architecture because it simplifies how proceeds and causes of action are managed across related estates.

The plan’s governance model: Plan Administrator + Cayman Islands wind-down trust. Terraform’s plan is, operationally, a governance design. Bankruptcy filings describe a Plan Administrator role tasked with implementing the plan and directing the wind-down process, and a Wind Down Trustee holding title to trust assets in a Cayman Islands trust structure. The plan supplement materials identify the Plan Administrator as Todd R. Snyder and the Wind Down Trustee as JTC (Cayman) Limited, and they describe the wind-down trust as a STAR trust under Cayman Islands law.

This model is familiar in concept—post-confirmation trusts are standard in liquidation plans—but Terraform’s facts make the execution unusually consequential because the recovery base includes a mix of (i) liquid assets, (ii) contested and regulated inflows (including crypto-related assets and transfers), and (iii) litigation and settlement proceeds that require careful compliance and distribution controls. The trust framework also helps separate “value realization” from “claim reconciliation,” allowing the plan administrator to liquidate assets while claims are being documented, vetted, and allowed under specialized procedures.

The plan supplement and related filings describe an Advisory Board role that creates a governance check on the plan administrator for a set of material actions, including consent/oversight constraints for specified decisions.

Claims architecture: classes, pools, and why “Crypto Loss Claims” were separated. The most distinctive feature of Terraform’s plan is the explicit separation of “Crypto Loss Claims” from ordinary general unsecured claims. The liquidation plan was described as using a trust structure for creditors and harmed investors September 2024 plan. Bankruptcy filings describe multiple claim classes and, importantly, distinct pools (including a general unsecured pool and a crypto loss pool) with a waterfall-style framework for moving funds from one pool to another as categories are satisfied.

The high-level logic is straightforward: a typical operating-company chapter 11 can use a single general unsecured class and a claims reconciliation process because the claimant population is finite and documentation is conventional (invoices, contracts, guarantees). Terraform’s claimant population is different—potentially large, globally distributed, and with loss evidence that may require technical verification and normalization. Separating those claims into a dedicated class and pool is a governance and process choice: it allows the estate to (i) define specialized procedures, (ii) set a dedicated bar date keyed to those procedures, and (iii) manage distribution timing and sequencing without stalling distributions to other constituencies that can be resolved more efficiently.

The following table aligns the plan’s class structure (as described in bankruptcy filings) with the operational meaning of each class.

Pool mechanics: what to watch in a liquidation plan measured by process, not leverage. Bankruptcy filings describe a “GUC Pool” funded from effective-date and post-effective-date cash sources, with a waterfall mechanism that can feed residual funds into the crypto loss pool once general unsecured payments are completed. They also describe the crypto loss pool as including remaining funds after general unsecured completion plus an SEC settlement fund component. The pool definitions and waterfall create three related mechanics:

1. The plan is sequencing distributions, not just allocating value. By defining “completion” of one category as the trigger for releasing funds to another, the plan creates an administrative schedule that can accelerate payments to conventional creditors while the more complex crypto loss process ramps up.

2. The crypto loss pool’s value is partially “earmarked” in structure. A pool definition that includes an SEC settlement fund component indicates that the plan is explicitly coordinating settlement proceeds with investor recovery procedures, rather than leaving those flows to ad hoc post-confirmation negotiations.

3. The recovery story is likely to be time-weighted. A trust-based liquidation plan with complex claim validation typically produces a recovery timeline measured in procedural milestones (bar dates, reconciliation cycles, objection rounds) rather than a single effective-date distribution.

Repayment estimates were described as $185 million to $442 million. The range described depends on (i) asset realization, (ii) settlement collections and transfers, and (iii) the ultimate allowed claim base after adjudication. In this case, the allowed claim base depends on the procedures used to transform investor histories into bankruptcy-allowable claims.

Crypto Loss Claims Process

Crypto loss claim procedures: bar dates, evidentiary burdens, and the operational design problem. Bankruptcy filings describe a two-layer bar date concept. The plan contemplates that the plan administrator would set a “Crypto Loss Claim Bar Date” by motion/notice no later than 120 days after the effective date, and it contemplates a dedicated process and timeline for administering and determining crypto loss claims. Post-effective-date filings later sought approval of procedures that required a dedicated crypto loss claim form submission through an online portal, with an evidentiary framework distinguishing preferred evidence (for example, wallet or API-based evidence) from manual evidence (for example, screenshots or PDFs), and with eligibility criteria tied to losses incurred before the Terra collapse “second de-peg” timestamp described in the motion.

Bankruptcy filings described a process to convert exchange accounts, on-chain wallet activity, and transaction histories into allowable claims under a consistent valuation framework. Post-confirmation motions sought approval of procedures requiring online submission through a dedicated portal and defined evidence standards (including preferred wallet/API-based evidence and manual evidence). These procedures were designed to support high-volume intake, validation, and reconciliation.

The upshot for creditors and investors is that the most important milestones can be procedural. Even when a plan is confirmed, recovery can be gated by a later bar date motion, the timing of portal availability, the estate’s ability to validate evidence types, and the objection cadence. The SEC linked investor recovery to the bankruptcy estate framework, reinforcing that the bankruptcy process—not a separate enforcement distribution—was the intended recovery conduit distribution page.

Releases and Implementation Protections

Releases, exculpation, and injunctions: a liquidation plan still needs closure mechanics. Terraform’s plan confirmation included the usual “closure” toolkit: releases, exculpation, and an injunction intended to enforce the plan’s discharge and settlement framework. Bankruptcy filings describe confirmation findings that the releases and injunction were integral to the plan and appropriately tailored, and they describe a carve-out that exculpation does not cover actual fraud, willful misconduct, or gross negligence. Those carve-outs matter in a crypto case with an enforcement narrative because they draw a line between plan-based implementation protection and conduct-based liability that the plan does not and cannot sanitize.

The releases, exculpation, and injunction provisions described in the plan and confirmation findings were intended to support post-confirmation administration and plan implementation, subject to the carve-outs and any retained rights.

Case Administration and Asset Monetization

Claims and noticing administration: why the claims agent still matters in a ‘no DIP’ case. Terraform’s case illustrates that “not financing-driven” does not mean “administratively light.” Bankruptcy filings describe the retention of a claims and noticing agent to maintain the official claims register, manage service lists and affidavits, and provide public access to the claims register via a case website. In mass-claims cases, the claims agent is not a back-office vendor; it is a functional part of the distribution infrastructure, because errors in noticing, address management, or claim intake can become due-process objections that derail distribution schedules. A crypto creditor claims portal was described as opening on March 31, 2025, underscoring the operational scale of the claims process.

Asset monetization: an example of how liquidation proceeds post-effective date. Bankruptcy filings describe post-confirmation asset monetization through discrete sale orders. One example is an order authorizing the sale of the debtors’ interests in Standard Crypto Venture Fund I LP, structured as a bankruptcy sale with “free and clear” authorization and associated implementation mechanics. That kind of transaction is typical in a liquidation plan: the trust and plan administrator monetize non-core assets and investments to add cash to the distribution pools while simultaneously reconciling claims. A plan hearing was described as set for September 2024, with materials referencing potential sales of remaining “operational” assets such as the Station wallet and other tools September 2024 hearing. The filings described both assets sold under court authority and other assets identified as potential monetization targets.

Key professionals: a litigation-heavy chapter 11 still has a traditional professional stack. Bankruptcy filings describe a debtor-side professional team that combined restructuring counsel and Delaware co-counsel with special counsel focused on the SEC enforcement action and Singapore litigation, plus a financial advisor retained to support restructuring analytics, reporting, and plan/disclosure statement work. Bankruptcy filings also describe an official committee of unsecured creditors with its own counsel and financial advisors. While the details of retainers, hourly rates, and scope provisions are case-specific, the structural point is consistent with complex cross-border cases: governance and claims architecture demand sophisticated professional oversight even when the debtor is not seeking DIP financing.

Key Timeline

Timeline: how the case moved from filing to confirmation and into post-confirmation administration. The case’s major dates help clarify that the plan was confirmed and went effective quickly relative to the size of the enforcement narrative, and that the heavy lift shifted to post-effective-date claims administration. The following timeline table is oriented around the milestones that drive professional workstreams.

Key Takeaways

Key takeaways. Terraform’s confirmed liquidation plan emphasized claim pool design, distribution sequencing, and trust governance:

• The SEC enforcement action and settlement/judgment terms were integrated into the plan’s pool and sequencing framework April 5, 2024.
• The plan separated investor crypto loss claims into a dedicated class and pool with specialized procedures.
• The plan contemplated post-effective-date claims procedures with evidence standards and portal-based submission in post-confirmation administration.
• The plan paired a trust-based wind-down structure with additional governance, including advisory board consent rights for specified actions.
• Repayment estimates were described as conditional on asset realization and the ultimately allowed claim base, with a range described as $185 million to $442 million.

Frequently Asked Questions

When did Terraform Labs file for chapter 11 bankruptcy, and where was the case filed?

Terraform’s chapter 11 petition was filed on January 21, 2024 in the U.S. Bankruptcy Court for the District of Delaware.

What did Terraform say was the main reason for the chapter 11 filing?

Management described the filing as a strategic step to continue operations and support litigation, including proceedings in Singapore and the SEC’s U.S. civil case Singapore litigation.

What did the SEC announce about Terraform’s settlement and judgment amount?

The SEC described a judgment package including $3.586 billion in disgorgement, $466.95 million in prejudgment interest, and a $420 million civil penalty (about $4.47 billion total), and it described a required transfer by Do Kwon of at least about $204 million of value to the bankruptcy estate. A contemporaneous summary described the combined settlement as about $4.5 billion.

When was the liquidating plan approved/confirmed, and what repayment range was publicly reported?

A liquidating chapter 11 plan was confirmed in September 2024, with repayment estimates described as $185 million to $442 million. Bankruptcy filings describe the plan as effective in October 2024 and administered through a Wind Down Trust structure.

What is the Wind Down Trust and who runs it?

Bankruptcy filings describe a plan structure implemented through a Wind Down Trust overseen by a Plan Administrator and a Wind Down Trustee. The plan supplement identifies Todd R. Snyder as the Plan Administrator and JTC (Cayman) Limited as the Wind Down Trustee, with the trust established under Cayman Islands law.

What are “Crypto Loss Claims,” and why were they separated from general unsecured claims?

Bankruptcy filings describe “Crypto Loss Claims” as a dedicated claim category administered under specialized procedures, with distributions tied to a separate claim pool. The practical reason to separate these claims is process: investor loss claims often require technical evidence and scalable validation workflows that differ from conventional trade or contract claims.

How does the plan handle the timing of crypto loss claim submissions (bar dates and procedures)?

Bankruptcy filings describe a “Crypto Loss Claim Bar Date” to be set by the plan administrator by motion/notice within a defined window after the effective date (subject to extension). Post-effective-date filings sought a dedicated bar date and a dedicated claim form and submission process through an online portal, including evidence rules and eligibility criteria.

Who is the claims and noticing agent for Terraform Labs?

Epiq Corporate Restructuring, LLC served as the claims and noticing agent in the chapter 11 case, maintaining the official claims register and handling noticing and service administration.

For more chapter 11 case research, see the ElevenFlo blog.