Terraform Labs, a bankrupt crypto firm, has strongly defended its decision to pay a $166 million retainer to law firm Dentons, despite objections from the U.S. Securities and Exchange Commission (SEC). In a recent court filing, the company labeled the SEC’s objection as “government overreach” and accused the regulator of attempting to disrupt its defense strategy.
The firm argued that the SEC’s objection was aimed at disadvantaging them ahead of trial, rather than serving the interests of justice. Terraform Labs urged the court to dismiss the SEC’s objections, claiming they were based on “misapplications of law and factual misstatements.”
The SEC had raised concerns about the size of the retainer payment to Dentons, describing it as “staggering” and questioning its timing in relation to the company’s bankruptcy filing. The regulator argued that the funds could be better utilized to repay Terraform Labs’ creditors and raised potential conflicts of interest between the firms.
In response, Terraform Labs asserted its need to retain Dentons to defend against pending litigation, including the SEC’s civil enforcement action and a grand jury investigation in the Southern District of New York. The company emphasized the importance of being able to operate as a “going concern” and claimed that its ability to mount a defense would be severely hindered without access to necessary legal resources.
The crypto firm’s lawyers contended that denying them the ability to fully defend against the government’s charges would violate their fundamental right to due process. They emphasized the critical nature of the upcoming legal proceedings and urged the court to uphold their right to effective representation.
As the legal battle between Terraform Labs and the SEC unfolds, the outcome will not only impact the fate of the company but also have broader implications for the regulation of the crypto industry in the United States.
