Jane Street Faces Lawsuit Alleging Insider Trading in Terra Collapse

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TLDR

  • Todd Snyder, the administrator for Terraform, has filed a lawsuit against Jane Street, alleging insider trading.
  • The complaint asserts that confidential information was utilized prior to the collapse of TerraUSD.
  • The legal action references a withdrawal of TerraUSD from a liquidity pool on May 7, 2022.
  • Jane Street refutes these allegations, attributing the losses to Terraform’s management.

A lawsuit has been brought against Jane Street, alleging the firm engaged in insider trading connected to the downfall of Terraform Labs. The complaint contends that the trading firm leveraged proprietary information to divest its holdings before the Terra ecosystem’s failure. Todd Snyder, the court-appointed administrator managing Terraform Labs’ liquidation, initiated this legal action in Manhattan federal court.

The defendants named include Jane Street, its co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang. The lawsuit posits that Jane Street acquired significant non-public data from Terraform insiders. It further asserts that the firm exploited this information to offload tokens associated with the Terra blockchain ahead of the market downturn.

Allegations of Insider Trading Before Terra Collapse

The complaint indicates that communication channels were established with former Terraform employees. Bryce Pratt, previously an intern at Terraform, is accused of re-establishing contact with former co-workers after joining Jane Street. Snyder alleges these connections furnished confidential updates regarding Terraform’s activities. The lawsuit specifies that this intelligence was disseminated via private chat groups and direct messages.

A pivotal incident highlighted in the complaint took place on May 7, 2022. Terraform removed 150 million TerraUSD from the Curve3pool liquidity pool without any public disclosure. Within a mere ten minutes, a digital wallet purportedly associated with Jane Street extracted 85 million TerraUSD from the identical pool. The lawsuit contends this represented Jane Street’s most substantial individual token swap.

Snyder asserts that the precise timing of this withdrawal was not publicly known. He further claims this action initiated significant selling pressure, which contributed to TerraUSD depegging from the dollar. The complaint declares that Jane Street divested “hundreds of millions of dollars in potential exposure at precisely the right moment.” It is alleged these transactions transpired merely hours before the ecosystem’s collapse.

Claims of Coordinated Communication and Market Activity

The legal filing also mentions communications involving Terraform founder Do Kwon. On May 9, amidst the depeg crisis, Pratt reportedly initiated a group message including Kwon and representatives from Jane Street. As per the complaint, Pratt conveyed an interest in bidding on Luna or bitcoin. Kwon responded that Jump Trading co-founder Bill DiSomma should have already reached out to them regarding a fundraiser. Snyder suggests that some of the confidential information might have been relayed via Jump Trading. Jump itself faced a separate lawsuit in December concerning alleged actions related to Terra’s collapse.

The administrator contends that Jane Street utilized sensitive data throughout the market instability. He asserts this enabled the firm to mitigate its losses while other investors experienced significant downturns. Snyder is pursuing damages, the forfeiture of profits, and interest. The case calls for a jury trial in federal court.

Jane Street Responds to the Lawsuit

Jane Street has repudiated these accusations. In a statement issued to media outlets, the firm characterized the claims as “unfounded, opportunistic allegations.” The company asserted that the financial losses incurred by Terra and Luna holders resulted from a “multi-billion dollar fraud” perpetrated by Terraform’s leadership. It declared its intention to mount a robust defense in court.

Terraform Labs experienced its collapse in May 2022, following TerraUSD, an algorithmic stablecoin, losing its parity with the US dollar. This incident wiped out approximately $40 billion in market capitalization and contributed to wider stress within the cryptocurrency market. Terraform initiated bankruptcy proceedings in 2024. Subsequently, the company consented to pay $4.47 billion in fines to the Securities and Exchange Commission.

Do Kwon admitted guilt to two criminal charges in the United States. He received a 15-year prison sentence in December. The lawsuit against Jane Street further expands the existing legal proceedings connected to the Terra collapse. The court is now set to investigate whether insider trading contributed to the sequence of events that culminated in the failure of the Terraform ecosystem.