Terraform Labs' bankruptcy trustee Todd Snyder has filed a lawsuit searching for $4 billion in damages from trading company Jump Trading and a number of other executives.
According to a Wall Street Journal report on Friday, the lawsuit alleges that Jump Trading unlawfully profited from and contributed to Terra's 2022 crash. In addition to the corporate, the lawsuit can also be directed against its co-founder William DiSomma and the previous president of the crypto trading department Kanav Kariya.
Terraform Labs and the Terra blockchain ecosystem collapsed in 2022 when its native algorithmic stablecoin, TerraUSD (UST), lost its peg to the US dollar. The stablecoin was backed by a Terra inflation mechanism, and when the peg was lost, the LUNA token experienced an issuance and sell-off shock. The crash resulted in losses of about $50 billion.
Snyder reportedly said within the filing that Jump “actively exploited” the Terraform ecosystem through manipulation and self-dealing, and that the lawsuit goals to recoup losses for creditors and harmed investors, the WSJ reported.
Jump Trading didn’t immediately reply to Cointelegraph's request for comment. The WSJ reported that Jump has denied the allegations.
Terra price chart. Source: CoinMarketCap
Alleged collusion and manipulation
According to the report, the brand new lawsuit alleges that Jump and Terraform entered right into a series of secret agreements. The trading company would have the chance to buy large quantities of LUNA at a major discount, because it was eligible to buy hundreds of thousands of LUNA for $0.40 at a trading price of over $110.
In return, Jump Trading can even reportedly maintain TerraUSD's peg to the US dollar, which might hide flaws within the algorithmic peg mechanism. The lawsuit also reportedly claims that this was kept secret as a “gentlemen's agreement” to avoid regulatory scrutiny. After the primary cancellation event, the trading company also allegedly claimed that the bond had been restored because of the mechanism, as an alternative of exposing its involvement.
According to WSJ, the lawsuit states that the Luna Foundation Guard Bitcoin (BTC) reserve, which was intended to guard TerraUSD from depegs, was led by Do Kwon and Kariya, co-founder and CEO of Terraform. This organization reportedly transferred almost 50,000 BTC to Jump Trading with no written agreement on how it will be spent.
Kwon pleaded guilty within the US in August and was sentenced to fifteen years in prison earlier this month. In November, he asked a U.S. judge to limit his sentence to 5 years, while prosecutors in South Korea pushed for a sentence of as much as 40 years.
Not Jump Trading's first lawsuit over Terra
The allegations against Jump are usually not recent. A lawsuit still ongoing as of May 2023 alleged that the trading company manipulated the value of TerraUSD. The plaintiffs within the case accused Jump of violating the Commodity Exchange Act and unjust enrichment. The lawsuit states:
“Instead of publicly acknowledging that TFL’s algorithm was unable to keep up UST’s advertised peg price (which was fundamental to the perceived market value of UST and AUST), TFL and Kwon secretly schemed with Defendant Jump to govern market prices for UST and AUST by moving into secret, coordinated trades to keep up UST at its $1 peg.”
Just months after the lawsuit was filed, Kariya resigned from his position amid reports of an investigation by the Commodities and Futures Trading Commission.
The company's stake in Terra also caught the eye of the U.S. Securities and Exchange Commission. In late 2024, Jump's wholly owned subsidiary Tai Mo Shan paid a $123 million settlement with the SEC for “misleading investors in regards to the stability of Terra USD.”
