The U.S. Securities and Exchange Commission (SEC) has raised concerns about Terraform Labs’ handling of a $166 million retainer payment to the law firm Dentons. The payment, made amidst an ongoing legal dispute between Terraform Labs and the SEC, has drawn criticism for allegedly diverting funds from investors and creditors to an “opaque slush fund” for lawyers.

The SEC has objected to the allocation of resources by Terraform Labs, which is currently facing bankruptcy proceedings following the collapse of TerraUSD and the LUNA token in May 2022. The commission argues that the retainer payment to Dentons is a diversion of funds that should be used to address the financial obligations owed to stakeholders.

In addition to the retainer payment, the SEC also disapproves of Terraform’s plan to engage Dentons for legal representation and cover litigation expenses for its employees. This move, according to the SEC, may be an attempt to circumvent potential future judgments in the ongoing legal battle.

Terraform Labs and its founder, Do Kwon, are currently embroiled in a legal dispute with the SEC over the collapse of TerraUSD and the subsequent bankruptcy filing in January 2024. The SEC’s objections highlight the contentious nature of the proceedings, with the commission alleging that diverted funds could have been used to provide restitution to affected investors and creditors.

Despite requests for comment, neither Terraform Labs nor Dentons have responded to the SEC’s objections. As the legal battle continues, the allocation of significant financial resources to legal representation remains a point of contention.

Moving forward, stakeholders will be closely monitoring the outcome of the proceedings, as it could have significant implications for Terraform Labs, its investors, and the broader cryptocurrency ecosystem. With the SEC’s scrutiny intensifying, Terraform Labs faces increased pressure to address the allegations surrounding the allocation of funds and navigate the legal challenges ahead.