Jump Crypto Subsidiary Reaches $123M Settlement with SEC Regarding TerraUSD Misrepresentation

Tai Mo Shan, a division of Jump Crypto, has consented to pay $123 million to resolve allegations made by the U.S. Securities and Exchange Commission (SEC) regarding claims that it misled investors about the reliability of TerraUSD (UST), an algorithmic stablecoin that subsequently failed.

The settlement, revealed on December 20, underscores the SEC’s persistent examination of stablecoins and their issuers.

The SEC charged Tai Mo Shan with entering into a deal with Terraform Labs in 2021 to acquire Terra LUNA at a significant discount.

Tai Mo Shan Invested $20M to Support UST Peg

The firm also allegedly invested $20 million to assist in maintaining UST’s 1:1 peg to the U.S. dollar.

“The repercussions were felt throughout the crypto markets, ultimately costing the savings of numerous investors,” SEC Chair Gary Gensler remarked.

“Regardless of the terminology used, participants in the crypto market must adhere to securities laws where applicable and not mislead the public.”

UST, which was once the third-largest stablecoin by market capitalization, collapsed in May 2022, triggering widespread panic in the cryptocurrency sector.

In contrast to conventional stablecoins that are backed by physical assets, UST relied on software algorithms and digital collateral to sustain its dollar peg.

The system began to fail on May 8, 2022, when a whale liquidated $285 million worth of UST, resulting in the stablecoin losing its peg and trading at $0.98.

By May 10, UST had dropped to $0.67, leading to mass liquidations and panic among investors.

The collapse exposed that the reserves of Terra’s underlying token, LUNA, were inadequate to support UST’s market capitalization, culminating in the total devaluation of the stablecoin.

The aftermath of UST’s failure prompted worldwide regulatory scrutiny of algorithmic stablecoins.

In the U.S., it influenced legislation such as the Lummis-Gillibrand Stablecoin Act of 2024, which prohibits algorithmic stablecoins.

JUMP TRADING FACES $123M FINE FOR TERRAUSD MANIPULATION
Jump Trading’s Tai Mo Shan allegedly stabilized TerraUSD’s $1 peg with $20M in trades, creating a “false sense of security.”
The SEC alleges negligence and profiting $1B during Terraform’s $40B collapse. The crypto fallout… pic.twitter.com/jss7anSPyS

— Crypto Town Hall (@Crypto_TownHall) December 21, 2024

The collapse also initiated a formal investigation into Terraform Labs and its founder, Do Kwon.

The company faced a $4.4 billion settlement, representing one of the most significant enforcement actions within the cryptocurrency sector.

Fracture Labs Sues Jump Trading Over Alleged ‘Pump and Dump’ Scheme

Crypto game developer Fracture Labs has initiated a lawsuit against Jump Trading, claiming that the firm manipulated its DIO gaming token through a “pump and dump” scheme.

The lawsuit, filed in October in an Illinois District Court, alleged that Jump Trading, acting as a market maker, violated its agreement to support the DIO token’s initial offering on the crypto exchange HTX (formerly Huobi) in 2021.

Fracture Labs contends that it provided Jump Trading with 10 million DIO tokens, valued at $500,000, to aid in the token’s launch.

Moreover, 6 million DIO tokens, worth around $300,000, were transferred to HTX.

After the launch, HTX enlisted online influencers to promote DIO, elevating its value to $0.98.

At this peak, the tokens held by Jump were reportedly valued at $9.8 million.

However, Fracture Labs asserts that Jump subsequently sold all its DIO holdings, resulting in a “mass liquidation” that caused the token’s price to plummet to $0.005.

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