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Do Kwon Faces Legal Challenges as Jump Trading’s Involvement in TerraUSD Case Becomes Prominent
Do Kwon, the co-founder of Terraform Labs, finds himself embroiled in a legal controversy as new details emerge regarding the collapse of the terraUSD (UST) stablecoin in 2022.
Kwon is currently under investigation, with recent updates suggesting that the involvement of market maker Jump Trading may be pivotal in the ongoing legal matters.
Jump Trading’s Earnings Examined in TerraUSD Case
In the aftermath of the UST stablecoin’s collapse in May 2022, Kwon faced a lawsuit from the U.S. Securities and Exchange Commission (SEC) for allegedly misleading investors.
An Oct. 18 filing in a New York court has highlighted the potential importance of Jump Trading LLC in this case. The market maker is reported to have earned significant profits, amounting to $1.28 billion, during the chaotic period when the terraUSD ecosystem was disintegrating.
The scrutiny on Jump Trading stems from an event a year earlier when UST briefly lost its peg to the U.S. dollar. Kwon had reassured investors that the stablecoin maintained its $1 value due to its automated algorithm. However, SEC experts argue that Jump Trading was instrumental in stabilizing the coin’s value at the request of Terraform Labs.
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The filing noted, “The peg instead recovered because Defendants entered an arrangement with a U.S. trading firm, Jump Trading LLC (“Jump”), to purchase substantial amounts of UST to support the price.”
Kwon’s Legal Team Refutes Market Maker’s Involvement
In light of these claims, Kwon’s legal representatives have denied any misconduct, asserting that Jump Trading’s transactions in terraUSD did not contribute to the peg restoration in May 2021. They further contended that the de-pegging of UST in May 2022 was the result of a deliberate attempt by third parties to short the stablecoin, leading to its deviation from the $1 price. Kwon’s team maintained that this de-pegging incident involved a direct, public effort to counteract the short positions.
Kwon’s defense has also argued that the SEC does not have jurisdiction in this matter, as the assets in question, specifically cryptocurrencies like UST, are currencies rather than securities. This assertion underscores a legal gray area that has been a contentious issue in the SEC’s actions against cryptocurrency exchanges such as Binance and Coinbase.
In the meantime, Kwon was apprehended in March for possessing counterfeit identification documents and is currently under house arrest following a Montenegrian basic court’s approval of his bail release request.
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