Jane Street is asking the court to dismiss the Terra collapse lawsuit with prejudice
Jane Street has asked a US court to dismiss a lawsuit alleging insider trading related to the collapse of TerraUSD.
Summary
- Jane Street asked a US court to dismiss Terraform’s lawsuit, arguing that it was trying to blame Terra’s downfall.
- The lawsuit alleges that the company used non-public information to trade key liquidity measures before the UST lost its dollar peg in May 2022.
- Jane Street says the trading decisions were based on public information and point to previous fraud convictions against Terraform and Do Kwon.
In a filing before the Southern District of New York, and shared with crypto.news, the trading company and several employees argued that the claims brought by Terraform Labs’ bankruptcy estate fail to meet the legal threshold and should be dismissed with prejudice, preventing the case from being refiled.
“This lawsuit is an attempt by the Terraform Labs estate to extract money from Jane Street to pay the bill for Terraform’s own market manipulation,” the defendants wrote.
Jane Street wants to be dismissed entirely, arguing that the lawsuit attempts to shift responsibility for the massive crypto collapse and doesn’t meet the standard necessary to move forward.
If we look back at the origin of the case, the case was filed in February by the bankruptcy administrator appointed by the court Todd Snyder, who alleged that Jane Street used confidential information to trade before the economic collapse in May 2022. That event wiped almost 40 billion dollars from the market value and caused a widespread collapse in all crypto markets.
Details disclosed in the complaint point to suspected information flowing between Terraform insiders and Jane Street traders. A former Terraform student, Bryce Pratt, who joined the company later, is said to have helped maintain communication channels with former colleagues. Those links, as well as group discussions involving Terraform founder Do Kwon, were identified as possible ways to share sensitive information.
“Jane Street abused market relations to manipulate the market during one of the most important events in crypto history,” Snyder said at the time.
Focus shifts to May 7, 2022, when Terraform withdraws 150 million TerraUSD from the main Curve liquidity pool. Minutes later, a wallet tied to Jane Street withdrew 85 million tokens from the same pool. The complaint says the move increased selling pressure and contributed to the UST losing its dollar peg.
According to the filing, the company used early access to those liquidity changes to offload large UST positions and build trades that benefited from the downturn.
Jane Street denies the allegations
In response to the claims, Jane Street argued that Terraform’s stated timeline does not justify access to non-public information. The company said key changes, including Terraform’s transition to a new liquidity pool, will be made public weeks in advance.
“Plaintiff points to the timing of Terraform’s transition to a new payment facility, but acknowledges that this change was publicly announced weeks ago, acknowledges that there was no market reaction to the announcement, and offers no concrete explanation as to why the change would affect the price of UST,” the filing said.
Trading records cited in the proposal show that some of the firm’s largest positions were built after concerns about TerraUSD had entered the public domain. The activity throughout May 7 and May 8, including the stock sale and short stop, does not simply reflect the use of confidential information, the defendants argue.
The company’s previous statements also retracted the allegations, calling the lawsuit a “massive attempt” to extract money and describing the allegations as “baseless, baseless claims.”
Turning to legal disputes, Jane Street said Terraform-related misconduct has been resolved through various processes.
“Terraform’s fraudulent scheme — in which Jane Street was not involved — has been prosecuted, convicted, and punished,” it read.
Do Kwon pleaded guilty to conspiracy and wire fraud and is serving a 15-year sentence, while a jury found Kwon and Terraform guilty of securities fraud. The filing also notes that Kwon admitted that he is “the only one dealing with everyone else’s pain.”
The legal strategy also uses the Wagoner rule, which limits the bankruptcy estate’s ability to sue third parties for losses related to its wrongdoing. In addition, the defendants questioned whether the disputed trade took place in the United States, raising doubts about the jurisdiction of the court.
