Liquidators at Three Arrows Capital (3AC) have filed suit against Terraform Labs, seeking $1.3 billion in damages for the collapse of TerraLUNA.
The lawsuit, filed on Aug. 12, alleges that TerraForm Labs manipulated the price of its tokens, LUNA and TerraUSD, causing catastrophic losses to 3AC.
Once a powerhouse in the cryptocurrency market, Three Arrows Capital experienced a staggering decline in 2022, losing $3.3 billion.
Since the bankruptcy, the company's liquidators have been actively seeking ways to recover funds for creditors, with TerraForm Labs, founded by Do Kwon, becoming the latest target of their legal activity.
Manipulation allegations
The lawsuit alleges that TerraForm Labs artificially inflated the prices of LUNA and TerraUSD and misled 3AC into investing heavily in those assets before the tokens crashed, causing the hedge fund to suffer significant losses and further exacerbating its financial difficulties.
The legal action comes after liquidators earlier investigated the whereabouts of billions of dollars in assets linked to 3AC founders Sue Chu and Kyle Davis as they continue to compensate creditors affected by the hedge fund's collapse.
Already embroiled in legal troubles and financial difficulties, Terraform Labs faces the daunting task of dealing with this new lawsuit: The company has been under intense scrutiny since the LUNA crash and recently filed for Chapter 11 bankruptcy protection in the United States.
According to court documents, TerraForm Labs' assets are estimated to be between $100 million and $500 million, far short of the $1.3 billion 3AC is seeking.
Additional legal challenges
Additionally, Terraform Labs is also in hot water as it is liable to pay approximately $4.5 billion in fines to the U.S. Securities and Exchange Commission (SEC) as part of a settlement related to the LUNA crash.
The SEC's June ruling requires that a large portion of those fines be used to compensate Terraform Labs' creditors.
Large financial obligations and ongoing legal battles have raised doubts about Terraform Labs' ability to meet the demands of 3AC's lawsuit. With the company's assets already depleted and its future uncertain, serious doubts remain about whether the company will be able to meet the claims.
As the case moves forward, its outcome could have significant implications for both the cryptocurrency industry and ongoing efforts to hold those responsible for Teraluna's collapse. The lawsuit represents a new chapter in a long-running legal battle that has arisen from one of the most controversial cases in recent cryptocurrency history.
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