Terraform Labs Sues Jane Street Over Alleged Insider Trading in Terra Collapse

Terraform Labs’ bankruptcy administrator has filed lawsuits against two major trading firms, accusing them of exploiting insider information and secret deals that contributed to the $50 billion Terra ecosystem collapse in 2022.

According to The Wall Street Journal, the court-appointed administrator of Terraform Labs has sued Jane Street in New York federal court, alleging the firm used nonpublic insider information to front-run trades and profit during Terraform’s collapse. The filing says that on May…

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Todd Snyder, the court-appointed administrator overseeing Terraform’s bankruptcy proceedings, filed suit against Jane Street in Manhattan federal court on Monday. The complaint names the firm, co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang.

The lawsuit accuses Jane Street of misappropriating confidential information and manipulating market prices. According to the heavily redacted filing, the trading firm allegedly used connections with Terraform insiders to obtain material non-public information.

Jane Street dismissed the allegations as baseless and opportunistic. The firm stated that losses suffered by Terra and Luna holders resulted from multi-billion dollar fraud perpetrated by Terraform Labs management.

Terraform Trades Allegedly Preceded Market Meltdown

The lawsuit centers on Jane Street’s trading activity in the hours before Terra’s catastrophic collapse. Snyder claims the firm sold hundreds of millions of dollars in potential exposure at precisely the right moment.

According to court documents, Jane Street onboarded Terraform for trading in 2018. However, trading activity in Terra tokens remained minimal until 2022. That changed after Bryce Pratt, a former Terraform intern, reconnected with former colleagues.

Pratt allegedly established communications with Terraform’s business development lead. Snyder claims this served as a back-channel source for material non-public information about the company’s operations.

On May 7, 2022, Terraform withdrew 150 million TerraUSD tokens from a stablecoin liquidity pool without public announcement. Within 10 minutes, Jane Street allegedly executed its largest-ever single swap.

The firm sold 85 million TerraUSD into the same liquidity pool. Snyder claims this transaction sparked a fire sale that ultimately triggered the ecosystem’s complete collapse.

The lawsuit further alleges that Jane Street continued leveraging sensitive information as TerraUSD was collapsing. Pratt reportedly established a group chat with Terraform co-founder Do Kwon during this period.

Jump Trading Faces Separate $4 Billion Lawsuit

Meanwhile, Snyder filed a separate lawsuit against Jump Trading, seeking $4 billion in damages. The complaint names the company, co-founder William DiSomma, and former crypto trading president Kanav Kariya.

The administrator overseeing the wind-down of Terraform Labs has sued high-frequency trading firm Jump Trading, alleging it unlawfully profited from and helped contribute to the collapse of Do Kwon’s crypto empire. The filing seeks $4 billion in damages from Jump, co-founder…

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The filing alleges Jump Trading actively exploited the Terraform ecosystem through manipulation and self-dealing. According to the Wall Street Journal, Snyder aims to recover losses for creditors and harmed investors.

Court documents reportedly describe secret agreements between Jump and Terraform. The trading firm allegedly received options to purchase large quantities of LUNA at steep discounts.

Jump was permitted to acquire millions of LUNA tokens at $0.40 when market prices exceeded $110. In exchange, the firm would reportedly help maintain TerraUSD’s dollar peg.

This arrangement allegedly concealed fundamental flaws in the algorithmic peg mechanism. The lawsuit claims both parties kept this as a secret gentlemen’s agreement to avoid regulatory scrutiny.

Following an earlier depegging event, Jump Trading allegedly claimed the mechanism restored the peg naturally. The firm reportedly failed to disclose its direct involvement in stabilization efforts.

The Luna Foundation Guard Bitcoin reserve was designed to protect TerraUSD against depegs. The lawsuit states that Kwon and Kariya directed this organization to transfer nearly 50,000 BTC to Jump Trading without written agreements.

Jump Trading has denied the allegations but did not immediately respond to requests for comment.