Jump Trading hit with $4B lawsuit tied to $50B Terra crash: WSJ

The administrator of Terraform Labs’ bankruptcy, Todd Snyder, has filed a lawsuit seeking $4 billion in damages from trading company Jump Trading and multiple executives.

According to a Friday Wall Street Journal report, the lawsuit alleges that Jump Trading unlawfully profited from and contributed to the 2022 crash of Terra. Alongside the company, the suit is also aimed at its co-founder, William DiSomma, and the former 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 inflationary mechanism, and when the peg was lost, the LUNA token saw an issuance and sell-off shock. The crash led to about $50 billion in losses.

Snyder reportedly said in the filing that Jump “actively exploited” the Terraform ecosystem through manipulation and self-dealing, and that the lawsuit is aimed at recovering losses for creditors and harmed investors, the WSJ reported.

Jump Trading did not immediately respond to Cointelegraph’s request for comment. The WSJ reported that Jump has denied the allegations.

Related: From TerraUSD to YU: Why stablecoins fail to hold $1 and the risks investors can’t ignore

Alleged secret agreements and manipulation

According to the report, the new lawsuit claims that Jump and Terraform entered into a series of secret agreements. The trading firm would have the option to purchase large quantities of LUNA at a steep discount, having been permitted to acquire millions of LUNA at $0.40 when it was trading at over $110.

In exchange, Jump Trading was also reportedly expected to keep TerraUSD’s peg to the US dollar, which would hide faults in the algorithmic peg mechanism. The lawsuit also reportedly claims that this was kept as a secret “gentlemen’s agreement” to avoid regulatory scrutiny. Following the first depegging event, the trading company also allegedly claimed that the peg was restored thanks to the mechanism, rather than disclosing its involvement.

According to the WSJ, the lawsuit states that the Luna Foundation Guard Bitcoin (BTC) reserve, which was meant to protect TerraUSD against depegs, was directed by Terraform co-founder and CEO Do Kwon and Kariya. This organization reportedly transferred nearly 50,000 BTC to Jump Trading without a written agreement determining how they would be spent.

Kwon pled guilty in the US in August and was sentenced to 15 years in prison earlier this month. In November, he had asked a US judge to cap his prison time at five years, with prosecutors in South Korea pushing for a sentence of up to 40 years.

Not Jump Trading’s first lawsuit over Terra

The accusations against Jump are not new. A May 2023 — and still ongoing — lawsuit alleged the trading company manipulated the price of TerraUSD. Plaintiffs in that case accused Jump of violating the Commodity Exchange Act and unjust enrichment. The lawsuit reads:

“Rather than publicly acknowledging the inability of TFL’s algorithm to maintain 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 manipulate the market prices for UST and aUST by making secret, coordinated trades to prop up UST to its $1 peg.“

Just months after the lawsuit was filed, Kariya stepped down from his role amid reports of a Commodities and Futures Trading Commission investigation.

The company’s involvement with Terra also attracted the attention of the US Securities and Exchange Commission. At the end of 2024, Jump’s wholly-owned subsidiary, Tai Mo Shan, paid a $123 million settlement with the SEC for “misleading investors about the stability of Terra USD.”

Related: Crypto exec to pay $10M to settle SEC claims over betting on TerraUSD