Terraform Labs Initiates Lawsuit Against Jane Street Over Alleged Insider Trading Before Terra-Luna's Downfall

The bankruptcy administrator for Terraform Labs has taken legal action against Jane Street, alleging that the trading firm leveraged insider information to hasten the demise of Terra-Luna and profit from it. The lawsuit contends that these actions directly harmed investors and creditors who collectively lost billions during the crash. According to a report from the Wall Street Journal (WSJ), Todd Snyder, the court-appointed plan administrator responsible for Terraform’s liquidation, is pursuing damages from Jane Street, co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang. In a complaint lodged in Manhattan federal court, Snyder asserts that the trading firm acquired material nonpublic information from insiders and utilized it to conduct preemptive trades that exacerbated the company's fall. The administrator remarked, “Jane Street manipulated market relationships to skew the market in its favor during a pivotal moment in crypto history.” Jane Street began trading directly with Terraform in late 2018, but its engagement with the project’s tokens intensified from February 2022. The lawsuit alleges that Pratt, who was previously an intern at Terraform before joining the trading firm, reestablished connections with former colleagues and formed a private group chat dubbed “Bryce’s Secret” to gather insider intel. He is further accused of facilitating email connections between the head of business development at Terraform and Jane Street's DeFi team, using these communications to gain access to confidential information that informed lucrative trades. In response, Jane Street has dismissed the accusations, characterizing the lawsuit as “a desperate attempt to extract money” and asserting that Terraform's financial losses resulted from a multibillion-dollar fraud orchestrated by its management. The firm has committed to vigorously defending itself against what it deems baseless claims. The lawsuit references a significant incident on May 7, 2022, when Terraform transferred 150 million TerraUSD out of the Curve3pool without market notification. Shortly after, a digital wallet associated with Jane Street withdrew 85 million TerraUSD from the same pool. However, Do Kwon, Terraform’s founder, clarified that the withdrawal was intended to relocate TerraUSD to a new liquidity pool for stablecoins. Two days later, with TerraUSD losing its dollar parity, Pratt allegedly coordinated a message group that included Kwon, Huang, and other firm representatives to deliberate on potential bids for Luna while Jane Street continued to profit from trading the stablecoin. Ultimately, Terraform collapsed later that month as TerraUSD lost its peg, causing the sister token Luna to plummet, leading to a total of approximately $40 billion in lost value and impacting hundreds of thousands of investors worldwide. This series of events prompted Terraform to file for bankruptcy in January 2024 and to establish a wind-down trust later that year. Kwon is currently serving a 15-year prison sentence following guilty pleas on two criminal charges in August.