Terraform Labs Sues Jane Street for Alleged Insider Trading Prior to Terra-Luna Collapse: Report

The suit filed by Terraform Labs’ bankruptcy administrator seeks damages tied to alleged pre-collapse positioning.

Terraform Labs’ bankruptcy administrator has filed a lawsuit against Jane Street, alleging the company used insider information to profit from and accelerate the collapse of Terra-Luna.

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

Jane Street Denies Accusations

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

In a complaint filed in a Manhattan federal court on Monday, Snyder alleges that the trading firm obtained material nonpublic information from insiders and used it to trade ahead of the market, speeding up the company’s downfall.

“Jane Street abused market relationships to rig the market in its favor during one of the most consequential events in crypto history,” wrote the administrator in a statement.

The company first signed on to trade directly with Terraform in late 2018, but its involvement in the project’s tokens did not intensify until February 2022.

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

Meanwhile, Jane Street has rejected the allegations, calling the lawsuit “a desperate attempt to extract money” and insisting that Terraform’s losses were the result of a multibillion-dollar fraud by its management. The firm added that it will defend itself “vigorously against these baseless, opportunistic claims.”

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Insider Trades Linked to Terraform Collapse

The lawsuit highlights a May 7, 2022, incident in which the crypto platform moved 150 million TerraUSD out of the Curve3pool without notifying the market. Less than ten minutes later, a digital wallet reportedly connected to Jane Street withdrew 85 million TerraUSD from the same pool. However, Do Kwon, its founder, said the withdrawal was meant to move TerraUSD to a new liquidity pool for stablecoins.

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

Terraform collapsed later that month after TerraUSD lost its peg to the dollar, with the sister token Luna also plunging to near zero.

The crash erased roughly $40 billion in value and affected hundreds of thousands of investors worldwide, leading the company to file for bankruptcy in January 2024 and formally establish a wind-down trust later that year. Kwon is now serving a 15-year prison sentence following guilty pleas on two criminal counts in August.