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Jane Street confronted allegations of insider trading that accelerated Terraform’s downfall in 2022.
Jane Street has refuted the claims as a "desperate" and "unfounded" effort to obtain funds.
What to know:
- The bankruptcy administrator for Terraform Labs has initiated legal action against high-frequency trading company Jane Street, alleging that it leveraged insider information to front-run trades that contributed to the 2022 downfall of TerraUSD and luna.
- The complaint asserts that a wallet associated with Jane Street withdrew 85 million TerraUSD from Curve3pool shortly after Terraform discreetly withdrew 150 million UST, which played a role in triggering the stablecoin’s devaluation and a $40 billion market loss.
- Jane Street has rejected the accusations as a "desperate" and "unfounded" attempt to gain funds.
High-frequency trading firm Jane Street faces allegations of insider trading that intensified the collapse of the crypto venture Terraform Labs in 2022, which resulted in significant losses for investors.
Todd Snyder, the official overseeing the closure of Do Kwon’s Terraform Labs, has filed a lawsuit against Jane Street, seeking compensation from its co-founder Robert Granieri, along with employees Bryce Pratt and Michael Huang, as reported by the Wall Street Journal.
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Snyder has charged the trading firm with utilizing confidential information from Terraform insiders to advance trades that hastened Terraform’s downfall. This involves trading on private, impactful information before it becomes public and then positioning ahead of large orders to secure profits first.
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"Jane Street misused market connections to manipulate the market in its favor during a pivotal moment in crypto history,” Snyder stated in a press release.
“On behalf of affected parties, we will explore all legal avenues available to us against those who took advantage of their position and garnered significant profits at the expense of Terraform Labs’ creditors.
Founded in 2018 by Do Kwon and Daniel Shin, Terraform Labs was a Singapore-based blockchain firm known for developing the Terra blockchain, its native token luna, and the algorithmic stablecoin TerraUSD (UST). The company filed for bankruptcy in January 2024, after which a wind-down trust assumed control later that year. Do Kwon received a 15-year prison sentence after pleading guilty to two criminal charges in August.
The stablecoin lost its 1:1 USD peg in May 2022, and within days, the luna token also plummeted to zero. This resulted in an unprecedented $40 billion in market capitalization disappearing in just a week, causing widespread wealth destruction globally. It also triggered the collapse of other crypto enterprises that had exposure to the project.
The situation began on May 7, when Terraform discreetly withdrew 150 million TerraUSD from the decentralized trading platform Curve3pool. The lawsuit contends that within 10 minutes, before Terraform made any public announcement, a wallet linked to Jane Street also withdrew 85 million TerraUSD from the same pool. This allegedly sparked market panic.
Kwon clarified the next day that the withdrawal of 150 million was intended to transfer coins to a new liquidity pool for stablecoins, but the damage was already done.
On May 9, as TerraUSD began to falter, Jane Street’s Pratt initiated a group chat with Kwon and his team, proposing offers to purchase bitcoin or Luna. Kwon responded by suggesting that Jump’s co-founder Bill DiSomma should have informed them earlier about Terraform’s fundraising efforts.
Jane Street has termed the lawsuit an effort to extract funds from the trading firm while pledging to defend itself robustly against "unfounded, opportunistic claims."
"This desperate lawsuit is a clear attempt to obtain funds when it is well known that the losses endured by Terra and Luna holders were the outcome of a multibillion-dollar fraud executed by the management of Terraform Labs,” a spokesperson for Jane Street stated.
