Terraform Labs sues Jane Street for alleged insider trading ahead of Terra-Luna’s collapse: report

The lawsuit filed by Terraform Labs’ liquidator seeks damages related to its alleged positioning before the collapse.

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

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

Jane Street denies allegations

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

In a complaint filed Monday in a Manhattan federal court, Snyder alleges that the trading firm obtained material non-public information from insiders and used it to make pre-market trades, accelerating the company’s demise.

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

The company first signed direct trading with Terraform in late 2018, but its involvement in the project’s tokens did not increase until February 2022.

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

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

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Insider transactions linked to Terraform’s collapse

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

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

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

The crash wiped out about $40 billion in value and affected hundreds of thousands of investors around the world, causing the company to file for bankruptcy in January 2024 and formally establish a liquidation trust later that year. Kwon is now serving a 15-year prison sentence after being found guilty of two charges in August.