In brief
- A new lawsuit launched by the administrators for Terraform Labs’ bankruptcy seeks $4 billion in damages from Jump Trading for its alleged involvement in the Terra ecosystem’s collapse.
- Terraform Labs is seeking to hold Jump Trading accountable for alleged market manipulation, self-dealing, and misuses of assets.
- The company’s former CEO, Do Kwon, was sentenced to 15 years in prison this month.
Todd Snyder, the court-appointed plan administrator overseeing the wind-down of Terraform Labs, has sued Jump Trading in U.S. federal court, accusing the trading firm of unlawfully profiting off of and materially contributing to the collapse of the Terra ecosystem.
The complaint was filed Thursday in the Northern District of Illinois, and seeks $4 billion in damages from Jump Trading, its co-founder William DiSomma, and former Jump Crypto president Kanav Kariya.
Snyder alleges that Jump entered into a series of undisclosed agreements with Terraform that allowed the firm to extract billions of dollars in value while helping conceal structural weaknesses in TerraUSD, the algorithmic stablecoin at the center of the collapse.
Terraform Labs confirmed the lawsuit on Friday, adding that it sought to “hold Jump to account for enriching itself through illicit market manipulation, self-dealing, and misuse of assets,” as well as to “recover value for creditors and hold Jump responsible for exploiting the ecosystem, leaving unsuspecting investors to bear the losses.”
The Wall Street Journal was first to report on the matter. A copy of the lawsuit has not yet surfaced in public repositories at press time.
Decrypt has reached out to Terraform Labs and Jump Trading for comment and will update this article should they respond.
Fallout and contagion
Terraform Labs’ implosion began in May 2022 after TerraUSD lost its dollar peg, spiraling into a catastrophic market wipeout that led to losses of over $40 billion across TerraUSD and its sister token, LUNA.
The fallout spread quickly through the crypto industry, contributing to a wave of insolvencies that later culminated in the collapse of crypto exchange FTX. Terraform Labs filed for bankruptcy in January 2024 and later agreed to pay roughly $4.5 billion to settle a civil securities fraud case with the Securities and Exchange Commission.
According to the lawsuit, as cited in the WSJ report, Jump and Terraform began working together as early as 2019 under arrangements that gave Jump the option to purchase large amounts of LUNA at prices below market value.
The complaint also alleges that Jump later struck a “gentlemen’s agreement” to support TerraUSD’s peg, including by purchasing tens of millions of tokens during a May 2021 depeg.
Terraform and Jump allegedly told the public that the recovery demonstrated the success of TerraUSD’s algorithmic design, even though Jump’s trading activity was responsible for restoring the peg.
The suit claims that after this episode, Jump negotiated changes to its contracts with Terraform that removed vesting restrictions, allowing the firm to receive and sell LUNA tokens more quickly.
Snyder further alleges that Jump ultimately earned billions of dollars from selling discounted LUNA into the market.
Do Kwon, the co-founder and former chief executive of Terraform Labs, designed and promoted the algorithmic model meant to keep TerraUSD pegged to the dollar through its linkage with LUNA.
Earlier this month, he was sentenced in the U.S. to 15 years in prison, and could yet face a separate criminal trial in South Korea.
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