Terraform Labs administrator sues Jump Trading for $4B

The court-appointed administrator overseeing the closure and bankruptcy proceedings of the now-defunct Terraform Labs has filed a $4 billion lawsuit against Jump Trading, accusing the trading firm of knowingly playing a part in its collapse.

In the complaint filed Thursday in the US District Court for the Northern District of Illinois, Eastern Division, Terraform Labs blames Jump for unlawfully profiting from Terraform’s rise and fall through “market manipulation, secret agreements, and misuse of digital assets.” 

The Office of the Terraform Labs Plan Administrator claims those actions helped inflate the ecosystem before leaving investors exposed when it unraveled. It is seeking to hold Jump co-founder William DiSomma and president Kanav Kariya accountable for allegedly acquiring wealth at the expense of TerraUSD stablecoin and its sister token, Luna. 

“The action aims to recover value for creditors and hold Jump responsible for exploiting the ecosystem, leaving unsuspecting investors to bear the losses,” the Terra Money Chapter 11 procedural official X account wrote.

Jump trading conducted secret token deals, administrator says

According to the lawsuit, Jump and Terraform supposedly entered into several secret agreements starting in 2019, which gave the former platform preferential access to Luna tokens at deeply discounted prices. Those arrangements allegedly allowed the trading firm to amass profits when Luna’s market value surged to an all-time high in 2022.

Per one agreement cited in the complaint, Jump purchased millions of Luna tokens for 40 cents a pop. At its peak, Luna traded above $110 per token, and according to court filings from the Securities and Exchange Commission (SEC), Jump made about $1 billion by selling the token at its highs.

The lawsuit also reiterated these deals were not disclosed to the public market, so Jump had an unfair advantage over retail investors who bought tokens without knowing the true structure of the ecosystem. The arrangements, according to the administrator, distorted market pricing and hid several fundamental weaknesses in the Luna token and Terraform’s business.

Speaking to the Wall Street Journal, a Jump spokeswoman rejected the claims and called the lawsuit an attempt by Do Kwon’s camp to deflect their responsibility in the fall of the digital token issuer. 

“This is a desperate attempt by Terraform Labs to shift blame and financial responsibility away from the crimes that Do Kwon committed. We will defend ourselves vigorously against these baseless claims,” she said.

Jump Trading propped up TerraUSD behind the scenes

Terraform Labs piled on their legal charges against Jump Trading saying it secretly intervened to support TerraUSD, Terraform’s algorithmic stablecoin, and helped trick the public to believe the system was functioning as it was meant to do.

Terraform collapsed in 2022 after TerraUSD lost its one-to-one peg with the US dollar, and Luna, the “system stabilizer,” plunged to near zero merely three days after the depeg. The sudden crash erased roughly $40 billion in market value and left thousands of investors with empty coffers.

The administrator alleges that before the final collapse, Jump had entered into a “gentlemen’s agreement” with Terraform to help keep TerraUSD’s peg. That arrangement was allegedly kept hidden to avoid regulatory scrutiny.

The office insisted that in May 2021, when UST briefly slipped below $1 and recovered, it was from the causality of large-scale purchases by Jump. The Chicago-based algorithmic trading company supposedly “misled the public” by pushing Terraform to tell the public UST’s peg had been restored organically.

Luna Foundation Guard benefited Jump officials and Do Kwon

After the initial depegging took place in 2021, Terraform created the Luna Foundation Guard, a reserve to defend TerraUSD using Bitcoin and other crypto assets. The plan administrator added that the foundation was directed by Terraform founder Do Kwon and Jump’s Kariya.

When TerraUSD depegged again in May 2022 and entered a so-called death spiral, the administrator claims nearly 50,000 bitcoins were transferred from the foundation to Jump without any written agreement of how the assets would be used.

Terraform filed for bankruptcy in January 2024 and agreed to pay about $4.5 billion to settle a civil securities fraud lawsuit brought by the SEC. About $300 million in assets have been recovered so far to compensate creditors, per public filings shared by the fallen crypto company.

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