Jane Street Challenges Terraform Labs Insider Claims

TLDR

• Jane Street asked a Manhattan federal court to dismiss the insider trading lawsuit filed by Terraform Labs’ administrator.
• Terraform Labs’ administrator Todd Snyder accused Jane Street and three employees of trading on nonpublic information.
• The lawsuit claims the trades occurred before the May 2022 collapse of TerraUSD and LUNA.
• Jane Street denied the allegations and said Terraform’s own fraud caused the ecosystem’s collapse.
• The firm argued that investors saw public signs of the market decline before it sold TerraUSD tokens.

Jane Street has urged a Manhattan federal court to dismiss an insider trading lawsuit tied to the Terra collapse. The trading firm challenged claims brought by the administrator of bankrupt Terraform Labs. It asked the court to throw out the case with prejudice and prevent it from returning.

Terraform Labs Alleges Insider Trading Tied to TerraUSD Collapse

Terraform Labs’ court-appointed administrator Todd Snyder filed the lawsuit in February against Jane Street and three employees. He accused the firm of trading Terra tokens using nonpublic information from Terraform insiders. The complaint named co-founder Robert Granieri and employees Bryce Pratt and Michael Huang.

Snyder claimed the defendants traded TerraUSD and LUNA tokens before the ecosystem collapsed in May 2022. He alleged that insiders shared details about a liquidity pool transition through back-channel communications. According to the complaint, those trades worsened the fallout and deepened losses across the market.

Terraform Labs collapsed after its algorithmic stablecoin TerraUSD lost its dollar peg. The failure triggered a rapid decline in the linked LUNA token and erased about $40 billion. Consequently, the bankruptcy estate now seeks damages from Jane Street and its employees.

The lawsuit argued that Jane Street executed large token sales during critical periods. It claimed that the firm benefited from early knowledge about liquidity changes. Snyder stated that the defendants acted on material nonpublic information and harmed other market participants.

Jane Street Moves to Dismiss Claims Against Terraform Labs Estate

Jane Street filed a motion to dismiss in federal court on Thursday. The firm described the lawsuit as an effort “to extract cash from Jane Street.” It argued that Terraform Labs itself orchestrated the fraud that led to its collapse.

The motion stated, “Terraform now claims it was victimized by Jane Street’s trading.” It added that Terraform’s fraud scheme “has already been prosecuted, adjudicated, and punished.” Jane Street maintained that it had no involvement in any fraudulent conduct.

The firm pointed to the conviction of Terraform founder Do Kwon. Kwon pleaded guilty to conspiracy and wire fraud charges. A court sentenced him to 15 years in prison.

Jane Street argued that investors saw clear public signs of the collapse. It stated that the firm sold “a deteriorating investment as the market was visibly collapsing.” The motion said Terraform’s own complaint undermined its insider trading claims.

The firm noted that the largest TerraUSD sale occurred 10 minutes after the information became public. It argued that Terraform failed to identify any specific material nonpublic information shared with Jane Street. The motion stated that the complaint relied on allegations made “on information and belief.”

Jane Street said Terraform could not identify any communication disclosing the liquidity pool timing. It emphasized that extensive pre-suit discovery uncovered no such evidence. The firm asked the court to dismiss the case with prejudice, which would bar future claims on the same grounds.

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