The administrator overseeing the bankruptcy of crypto firm Terraform Labs has launched a federal lawsuit against trading firm Jane Street, alleging the firm used insider information to profit from the collapse of the Terra ecosystem. Todd Snyder, the court-appointed administrator, filed the suit in Manhattan federal court on Monday, naming Jane Street, its co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang as defendants.
The complaint, heavily redacted, alleges that Jane Street misappropriated confidential information and manipulated market prices. Specifically, it claims that Jane Street used connections with Terraform insiders to gain material non-public information about the company, which it then used to sell off tokens tied to the Terra blockchain, exacerbating the collapse.
Jane Street’s Defense
Jane Street has vehemently denied the allegations, calling the lawsuit 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 Terraform Labs’ management. ‘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 firm stated.
The Collapse of Terraform
Terraform Labs collapsed in May 2022 when its algorithmic stablecoin, TerraUSD, lost its peg to the US dollar, triggering a death spiral that wiped out $40 billion in value. The company filed for bankruptcy in the US in 2024, and its co-founder, Do Kwon, was arrested and pleaded guilty to two fraud charges, receiving a 15-year prison sentence in December.
Timeline of Events
According to the lawsuit, Jane Street’s trading of Terra tokens did not gain significant momentum until 2022, after Pratt, a former Terraform intern, reestablished communication with his old teammates. Snyder alleges that Pratt set up a back-channel for material non-public information about Terraform, which Jane Street used to inform its trades.
The suit claims that on May 7, 2022, Terraform withdrew 150 million TerraUSD tokens from a liquidity pool for trading stablecoins without publicly announcing the move. Within 10 minutes, Jane Street sold 85 million TerraUSD into the same liquidity pool, its largest-ever single swap, which Snyder argues kicked off a fire sale of the token and ultimately led to the collapse of the Terra ecosystem.
Seeking Damages
Snyder is seeking damages from Jane Street, along with disgorgement and interest, at a jury trial. The lawsuit highlights the complex interplay between insider information and market manipulation in the crypto industry, a sector that has faced increasing regulatory scrutiny in recent years.
As the case unfolds, it could have significant implications for how trading firms operate in the crypto space and the measures they must take to avoid allegations of insider trading. The outcome of this lawsuit may set a precedent for future cases and could influence the regulatory landscape for cryptocurrency trading.
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