Terraform Labs sues Jane Street, alleging 'front-running using inside information'

The administrator overseeing the liquidation of Terraform Labs, founded by Do Kwon, has filed a lawsuit in the US against major market-making firm Jane Street, alleging insider trading. The claim is that Jane Street used nonpublic information during the Terra–Luna collapse to reap improper gains and accelerate the crisis.

According to the complaint filed with the US District Court for the Southern District of New York and cited by The Wall Street Journal (WSJ) on the 23rd (local time), plan administrator Todd Snyder—appointed by the bankruptcy court—sought damages from Jane Street, co-founder Robert Granieri, and employees Bryce Pratt and Michael Hwang, among others. The filing alleges that Jane Street received material nonpublic information from a Terraform Labs insider and engaged in front-running.

Terraform Labs collapsed in May 2022 after the algorithmic stablecoin TerraUSD (UST) lost its dollar peg. Its sister token LUNA also effectively became worthless within days, wiping out roughly $40 billion in market value. The fallout triggered a cascade of failures that led to the bankruptcy of FTX. Terraform Labs ultimately filed for bankruptcy in January 2024, after which a liquidation trust was established. Founder Do Kwon pleaded guilty to criminal charges and was sentenced to 15 years in prison.

The complaint says that on May 7, 2022, at 5:44 p.m. (US Eastern time), shortly after Terraform Labs withdrew $150 million worth of UST from Curve’s 3pool, a wallet believed to be linked to Jane Street withdrew about $85 million worth of UST. The administrator alleges the withdrawal occurred before it became public. The liquidator said Jane Street “obtained information through internal communication channels and used it to maximize profits.”

Jane Street countered that losses suffered by Terra–Luna investors “stemmed from massive fraud by Terraform’s management,” adding it would “respond forcefully” to what it called an “opportunistic lawsuit without merit.” The suit is an additional legal action following an earlier lawsuit the liquidator filed against Jump Trading.