Jane Street Accused of Insider Trading That Helped Collapse Terraform
The court-appointed administrator of Do Kwon’s Terraform Labs alleged that Jane Street used nonpublic information from Terraform insiders to trade
- Terraform Labs’ administrator sued Jane Street, its co-founder, and employees, alleging insider trading hastened the crypto empire’s collapse.
- The lawsuit alleges Jane Street used nonpublic information from Terraform insiders to front-run trades, including a May 2022 TerraUSD withdrawal.
- Terraform’s May 2022 collapse, when TerraUSD lost its dollar peg, caused a $40 billion crash and triggered wider crypto failures.
The administrator winding down Do Kwon’s Terraform Labs has sued Jane Street, alleging that the high-speed trading giant engaged in insider trading to profit unlawfully from and ultimately hasten the crypto empire’s collapse.
Todd Snyder, the plan administrator appointed by a bankruptcy court, is seeking damages from Jane Street, its co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang.
In a heavily-redacted complaint, the administrator alleged Monday in Manhattan’s federal court that Jane Street used material nonpublic information from Terraform insiders to front-run trading that sped up Terraform’s demise.
Terraform collapsed in May 2022 when its TerraUSD cryptocurrency, a so-called algorithmic stablecoin, lost its peg to the dollar. A sister token called Luna also plummeted to near zero within days of the depeg. Their $40 billion crash hurt hundreds of thousands of investors worldwide, some of whom lost their life savings nearly overnight. The implosion also triggered a chain reaction that toppled companies across the crypto sector, ultimately culminating in the collapse of Sam Bankman-Fried’s FTX exchange.
Terraform filed for bankruptcy in January 2024 and a wind down trust was formally established later that year. Kwon, the brash entrepreneur who founded Terraform in 2018, is serving a 15-year prison sentence after pleading guilty to two criminal counts in August.
“Jane Street abused market relationships to rig the market in its favor during one of the most consequential events in crypto history,” Snyder said in a statement. “On behalf of injured parties, we will pursue all avenues supported by the facts and the law against those who exploited their position and reaped substantial profits at the expense of Terraform Labs’ creditors.
“This desperate suit is a transparent attempt to extract money when it is well-established that the losses suffered by Terra and Luna holders were the result of a multibillion-dollar fraud perpetrated by the management of Terraform Labs,” said a spokesman for Jane Street. “We will defend ourselves vigorously against these baseless, opportunistic claims.”
By late 2018, Jane Street had signed up to trade directly with Terraform but its trading in Terraform’s tokens didn’t take off until February 2022, when Jane Street sent Bryce Pratt, a former intern at Terraform, to establish lines of communication with his former Terraform colleagues, according to the lawsuit.
Among Pratt’s communications with Terraform was a group chat he set up with his former colleagues, including a software engineer and the head of business development at Terraform. The group named the chat “Bryce’s Secret” and used it as a way to channel Terraform-related information back to Jane Street, per the lawsuit.
After Pratt started an email chain to introduce Terraform’s head of business development and Jane Street’s “DeFi” leaders, the parties began regularly communicating and discussing a potential Jane Street investment in Terraform, the lawsuit said. But Jane Street turned those communications into a back-channel source for material nonpublic information about Terraform and later used the confidential information it learned to pursue trades to maximize profits for itself, the suit said.
Specifically, on May 7, 2022, at 5:44 p.m. EST, Terraform withdrew 150 million TerraUSD from the Curve3pool, a liquidity pool where stablecoins—typically dollar-pegged cryptocurrencies—could be exchanged one for the other.
Less than 10 minutes after Terraform’s withdrawal, which hadn’t been publicly announced to the market, a crypto wallet that some analysts have linked to Jane Street withdrew 85 million of TerraUSD from the same liquidity pool, the complaint alleges.
The next day, Kwon said publicly that the 150 million withdrawal was meant to move TerraUSD to a new liquidity pool for stablecoins. However, the exact timing of activities associated with the new liquidity pool, including any withdrawals from the Curve3pool, wasn’t public knowledge, according to the lawsuit.
The lawsuit comes two months after the Terraform Labs plan administrator sued Jump Trading, which allegedly entered into a secret deal to prop up TerraUSD before the coin’s collapse, and later emerged from Terraform’s collapse with billions of dollars in gains.
After the May 7 trade, Jane Street continued to use confidential information, including what it learned from Jump Trading, to trade TerraUSD to reap more profits, the lawsuit said.
On May 9, while TerraUSD was depegged but not fully collapsed, Pratt set up a group message with Kwon, Huang and others at Jane Street, expressing the firm’s interest in bidding on either bitcoin or the Luna token. Kwon responded that Bill DiSomma, co-founder of Jump, should have reached out to Jane Street to discuss a fundraise for Terraform, according to the complaint.
Jane Street served as the career launchpad for both Bankman-Fried and Caroline Ellison before they left to found the hedge fund Alameda Research and FTX exchange.