Terraform Labs Sues Jane Street For Alleged Insider Trading Ahead Of Terra-Luna Collapse: Report

The lawsuit filed by Terraform Labs’ bankruptcy administrator seeks damages related to the alleged premature collapse.

The bankruptcy trustee of Terraform Labs filed a lawsuit against Jane Street, alleging that the company used insider information to profit and hasten the downfall of Terra-Luna.

The lawsuit says these trades came at the expense of investors and creditors who lost billions in the crash.

Jane Street Denies Allegations

A Wall Street Journal (WSJ) report reveals that Todd Snyder, the court-appointed administrator overseeing the Terraform trial, is seeking damages from Jane Street, its founder Robert Granieri, and employees Bryce Pratt and Michael Huang.

In a complaint filed in Manhattan federal court on Monday, Snyder alleges the trading firm obtained non-public information from insiders and used it for pre-market trading, hastening the company’s downfall.

“Jane Street abused market relations to manipulate the market during one of the most important events in crypto history,” the director wrote in a statement.

The company first signed a direct exchange with Terraform in late 2018, but its involvement in the project’s tokens was not confirmed until February 2022.

The lawsuit alleges that Pratt, a former intern at a crypto firm who later joined a trading firm, reconnected with former colleagues and created a private chat group called “Bryce’s Secret” to gather insider information. He is also accused of coordinating email introductions between the firm’s head of business development and the firm’s DeFi team. The complaint alleges that these communications were then used to obtain confidential information and inform lucrative trades.

Meanwhile, Jane Street dismissed the allegations, calling the lawsuit a “massive extortion attempt” and insisting that Terraform’s losses were the result of multibillion-dollar fraud by its executives. The company added that it will defend itself “vigorously against these baseless and opportunistic claims.”

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Insider Trades Linked to Terraform’s Collapse

The case highlights an incident on May 7, 2022, when the crypto platform withdrew 150 million TerraUSD from Curve3pool without notifying the market. Less than ten minutes later, a digital wallet reportedly linked to Jane Street withdrew 85 million TerraUSD from the same pool. However, Do Kwon, its founder, said that the withdrawal was meant to move TerraUSD into a new liquidity pool for stablecoins.

Two days later, as the digital asset began to lose its dollar peg, Pratt allegedly set up a group message with Kwon, Huang, and firm representatives to discuss potential bids for Luna as the company continues to reap more profits from stablecoin trading.

Terraform crashed later that month after TerraUSD lost its peg to the dollar, sister token Luna also hit zero.

The crash wiped out an estimated $40 billion and affected hundreds of thousands of investors worldwide, prompting the company to file for bankruptcy in January 2024 and formally establish a wind-down trust later that year. Kwon is serving a 15-year prison sentence after pleading guilty to two felony charges in August.