Jane Street accused of insider trading in Terraform Labs collapse lawsuit
Court-appointed administrator Todd Snyder has filed a lawsuit alleging that Jane Street engaged in insider trading by obtaining confidential information from Terraform Labs, accelerating the firm's downfall.
A court-appointed administrator overseeing the bankruptcy proceedings of cryptocurrency firm Terraform Labs has filed a legal complaint against trading company Jane Street, alleging that the firm engaged in insider trading activities that accelerated the downfall of the Terra ecosystem worth billions of dollars.
Todd Snyder, who was appointed by the court to manage Terraform's bankruptcy case, filed the lawsuit on Monday against Jane Street, along with its co-founder Robert Granieri and two employees, Bryce Pratt and Michael Huang, in Manhattan federal court. The allegations include "misappropriating confidential information and manipulating market prices."
According to the complaint, which contains significant redactions, Jane Street leveraged relationships with "Terraform insiders to learn material non-public information" regarding the company's operations and subsequently utilized this privileged data to liquidate tokens connected to the Terra blockchain, actions that exacerbated the platform's eventual collapse.
In response to the allegations, Jane Street informed Cointelegraph that it intends to mount a vigorous defense against what it characterizes as "baseless, opportunistic claims."
This desperate suit is a transparent attempt to extract money when it is well-established that the losses suffered by Terra and Luna holders were the result of a multi-billion dollar fraud perpetrated by the management of Terraform Labs.
The Terraform ecosystem experienced a catastrophic failure in May 2022 when TerraUSD, its algorithmic stablecoin token, lost its dollar peg, triggering a devastating death spiral that also caused the Terra token to crash and eliminated $40 billion in market value.
The company initiated bankruptcy proceedings in the United States in 2024, and its co-founder, Do Kwon, was subsequently apprehended by authorities and entered a guilty plea in the US to two separate fraud-related charges. In December, he received a sentence of 15 years in prison.
Jane Street sold at "precisely the right time" before collapse, suit claims
The lawsuit filed by Snyder alleges that Jane Street obtained inside information that enabled the firm to liquidate "hundreds of millions of dollars in potential exposure at precisely the right time, mere hours before the Terraform ecosystem collapsed."
The legal filing states that Jane Street began working with Terraform for trading purposes in 2018, but its involvement in trading Terra tokens "did not take off" until 2022, which coincided with Pratt, who had previously worked as an intern at Terraform, renewing contact with his former colleagues at the company.
Additionally, Pratt established lines of communication with Terraform's business development lead, creating what Jane Street allegedly exploited as "a back-channel source for material non-public information about Terraform," according to Snyder's claims.
The complaint details that on May 7, 2022, Terraform removed 150 million TerraUSD tokens from a liquidity pool designated for stablecoin trading without making any public disclosure of this action.
According to Snyder's allegations, within just 10 minutes following Terraform's withdrawal from the pool, Jane Street executed a sale of 85 million TerraUSD tokens into the identical liquidity pool, representing its largest-ever single transaction of this type, which initiated a massive sell-off of the token that "ultimately led to the collapse of the Terra ecosystem."
The legal complaint further alleges that Jane Street persisted in exploiting confidential information to guide its trading decisions involving the TerraUSD stablecoin throughout its collapse phase in order to maximize profits, with Pratt creating a group chat that included Kwon as a participant.
Snyder's legal action seeks monetary damages from Jane Street, in addition to disgorgement of profits and interest payments, to be determined at a jury trial.