Jump Trading Faces $4 Billion Lawsuit Linked to $50 Billion Terra Collapse: WSJ

The bankruptcy administrator for Terraform Labs, Todd Snyder, has initiated a lawsuit seeking $4 billion in damages against trading firm Jump Trading and several of its executives.

Key Takeaways

A $4 billion lawsuit has been filed against Jump Trading concerning its role in the 2022 Terra crash.
The lawsuit claims Jump Trading profited unlawfully and manipulated the Terra ecosystem.
Terraform Labs' algorithmic stablecoin, TerraUSD, lost its peg leading to massive financial losses.
Previous lawsuits and regulatory scrutiny have already targeted Jump Trading's actions related to Terra.

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

According to a report from the Wall Street Journal on Friday, the lawsuit contends that Jump Trading unlawfully profited from and contributed to the Terra crash of 2022. The lawsuit targets not only the firm but also its co-founder, William DiSomma, and the former president of its crypto trading division, Kanav Kariya.

Background of the Terra Crash

The downfall of Terraform Labs and the Terra blockchain ecosystem occurred in 2022 when its algorithmic stablecoin, TerraUSD (UST), lost its peg to the US dollar. UST was supported by a Terra inflationary mechanism, and when the peg fell apart, it triggered a mass issuance and sell-off of the LUNA token, resulting in approximately $50 billion in losses.

Snyder stated in court documents that Jump "actively exploited" the Terraform ecosystem through manipulative practices, with the aim of recovering losses for creditors and affected investors, as reported by the WSJ. Jump Trading has not yet responded to requests for comment from Cointelegraph, but according to the WSJ, the firm has denied the allegations.

Terra price chart. Source: CoinMarketCap
Related: From TerraUSD to YU: Why Stablecoins Fail to Maintain $1 and the Risks Investors Should Consider

Allegations of Secret Agreements and Price Manipulation

The recent lawsuit also claims that Jump Trading and Terraform allegedly entered into secret agreements. It suggests that Jump was given the option to buy large amounts of LUNA at heavily discounted prices, reportedly being able to acquire millions of LUNA for just $0.40 while it traded for over $110.

In return, Jump Trading was expected to help maintain TerraUSD's peg to the US dollar, allowing them to conceal flaws in the algorithmic mechanism. According to the lawsuit, this arrangement was kept as a hidden "gentlemen's agreement" to avoid regulatory attention. Following the first event when the peg was lost, Jump allegedly claimed that it had been restored due to the mechanism itself, rather than acknowledging its involvement.

The WSJ detailed that the lawsuit asserts that the Luna Foundation Guard's Bitcoin reserve, intended to protect TerraUSD from depegging, was overseen by Terraform co-founder and CEO Do Kwon and Kariya. The organization reportedly transferred nearly 50,000 BTC to Jump Trading without a written agreement outlining their intended use.

Kwon recently pleaded guilty in the United States in August and was sentenced to 15 years in prison earlier this month. In November, he petitioned a U.S. judge to reduce his prison time to five years, while prosecutors in South Korea have called for a sentence of up to 40 years.

Previous Lawsuits Against Jump Trading Over Terra

The allegations against Jump Trading are not unprecedented. In May 2023, a separate lawsuit was filed against the firm, claiming it manipulated the price of TerraUSD. Plaintiffs accused Jump of violating the Commodity Exchange Act and of unjust enrichment.

Just months after this lawsuit was filed, Kariya left his position as reports surfaced of an investigation by the Commodities and Futures Trading Commission.

Furthermore, Jump's activities related to Terra have drawn the scrutiny of the U.S. Securities and Exchange Commission (SEC). At the end of 2024, Jump's wholly owned subsidiary, Tai Mo Shan, settled for $123 million with the SEC for "misleading investors about the stability of Terra USD."

Related: Crypto Exec to Pay $10M to Settle SEC Claims Regarding TerraUSD