The Terraform Labs liquidator lawsuit, filed against Jump Trading, seeks $4 billion in damages, alleging that the trading firm secretly supported TerraUSD’s peg during the May 2021 stress events while misleading investors about the algorithmic stability of the stablecoin
Key Insights
- Terraform Labs’ liquidator has filed a $4 billion lawsuit against Jump Trading.
- The case claims that Jump Trading secretly supported TerraUSD and later sold Luna for large profits.
- Courts continue to examine responsibility for the 2022 Terra collapse.
Terraform Labs remains at the center of legal battles, even years after its collapse.
The latest case has now added a major trading firm to the list of defendants. Jump Trading has been sued by the liquidator overseeing Terraform Labs’ bankruptcy for $4 billion. The lawsuit claims that Jump benefited from secret deals tied to TerraUSD before its failure.
Terraform Labs Liquidator Sues Jump Trading
The court-appointed liquidator for Terraform Labs filed the lawsuit in federal court in Illinois this week. According to the filing, Jump Trading, its co-founder William DiSomma and former Jump Crypto president Kanav Kariya have all been named as defendants.
The complaint states that Jump Trading entered hidden arrangements with Terraform Labs.
These deals allegedly allowed Jump to support TerraUSD during early stress events. Public statements credited Terra’s algorithm for stability at the time, and the lawsuit argues that this claim misled investors.
Jump Trading confirmed that it was aware of the lawsuit through a public statement, and a spokesperson described the case as an attempt to move blame away from Do Kwon
TerraUSD Collapse Still Shapes the Case
Terraform Labs collapsed in May 2022, and TerraUSD (also known as UST) lost its dollar peg. The stablecoin relied on an algorithm tied to its sister token Luna, and once confidence fell, the design failed within days.
Both tokens dropped close to zero, and the crash erased more than $40 billion in market value. Many firms had exposure to UST and Luna at the time, and losses spread fast across crypto lending and trading firms. Three Arrows Capital fell soon after, and other firms followed as collateral values dropped.
In all, the event stands as one of the biggest implosions in the history of crypto.
Allegations of Secret Peg Support
The lawsuit claims that Jump Trading supported TerraUSD during a depeg in May 2021.
According to the filing, Jump bought large amounts of UST to restore its peg. Terraform Labs later presented the recovery as proof of the algorithm’s strength.
Regulators later disputed that claim. The Securities and Exchange Commission said that Jump’s crypto unit Tai Mo Shan was a major part of this. The SEC alleged that Tai Mo Shan received early access to unlocked Luna tokens in return.
Those tokens could then be sold into the market, and court filings from the SEC estimated profits of about $1.28 billion from the arrangement.
Tai Mo Shan later agreed to pay about $123 million in fines.
Claims of Large Profits From Luna Sales
Todd Snyder’s complaint says that Jump Trading made billions through these transactions. The lawsuit accuses the firm of concealment and self-dealing and argues that Jump protected its own positions while investors stayed in the dark.
The filing also claims that Jump gained access to large amounts of Luna at discounted prices, and these tokens were allegedly sold before the final crash.
Snyder stated that the lawsuit was filed to hold Jump accountable for actions tied to the largest crypto failure to date.
Terraform Bankruptcy and SEC Penalties
Terraform Labs filed for bankruptcy in January of last year as efforts to revive the project failed. Public records show that the estate has recovered about $300 million so far, and these funds are intended for creditor compensation.
The company also reached a major settlement with the SEC in 2024 when Terraform Labs and Do Kwon agreed to pay about $4.47 billion in penalties.
Do Kwon later pleaded guilty to criminal charges in August of this year, and a US judge sentenced him to 15 years in prison.
Role of Jump Crypto and Luna Foundation Guard
The lawsuit also mentions the Luna Foundation Guard. This reserve was created after the 2021 depeg and held large amounts of Bitcoin meant to defend TerraUSD.
The complaint alleges that nearly 50,000 Bitcoins were transferred to Jump Trading, and no written agreement explained how those assets should be used.
The Luna Foundation Guard failed to stop the 2022 collapse, and the courts are now looking into whether outside firms influenced its decisions.
Disclaimer: This article is intended solely for informational purposes and should not be construed as financial advice. Investing in cryptocurrencies involves substantial risk, including the possible loss of your capital. Readers are encouraged to perform their own research and seek guidance from a licensed financial advisor before making any investment decisions. Voice of Crypto does not endorse or promote any specific cryptocurrency, investment product, or trading strategy mentioned in this article.
