Jump Trading faces $4B lawsuit over Terraform Labs collapse

The administrator overseeing Terraform Labs’ liquidation has filed a $4 billion lawsuit against Jump Trading, accusing it of illegally profiting from Terra’s collapse.

As reported by the Wall Street Journal, the filing was made in the District Court for the Northern District of Illinois, and targets Jump, the firm’s president Kanav Kariya, and its co-founder, William DiSomma.

It claims that various secret deals were struck between the two firms that allowed Jump to profit billions of dollars from the collapse while it allegedly lied about the stablecoin’s algorithmic capabilities. 

Todd Snyder, overseeing the liquidation, claims that Jump “actively exploited the Terraform Labs ecosystem through manipulation, concealment, and self-dealing that enriched Jump while financially devastating thousands of unsuspecting investors.”

He says the lawsuit will “hold Jump Trading accountable for illegal conduct that directly caused the largest crypto collapse in history.”

Public filings suggest $300 million has been recovered to compensate victims of the collapse so far.  

Lawsuit alleges history of malpractice 

In 2022, Do Kwon’s Terraform Labs and its TerraUSD (UST) stablecoin collapsed, causing $40 billion worth of losses across the industry.

Do Kwon was sentenced to 15 years in prison last week for his role in the collapse that Jump allegedly played a part in.

Back in 2019, Jump and Terraform Labs allegedly struck a secret deal that allowed Jump to buy Luna tokens at a discounted price.

Indeed, at one point, it had permission to acquire the tokens for 40 cents each when the market price was $110.

In 2021, Jump also reportedly struck a secret “gentlemen’s agreement” that would avoid regulatory scrutiny and help keep UST pegged to the dollar.

The $1 peg was broken in May 2021 and then propped up in secret by Jump. The firm then lied about how the peg was maintained, claiming that the stablecoin’s algorithm kept it afloat.  

Read more: Jump Crypto’s shady backers could make things worse during CFTC probe

Another deal was allegedly made that would drop the vesting conditions for Jump so that it would, in exchange, buy up UST to keep the peg in check. The deal meant Jump could sell Luna tokens without the usual lockup restrictions. 

Almost 50,000 bitcoins were also allegedly sent to Jump with no written agreement during TerraUSD’s collapse.

This was done by the Luna Foundation Guard, which was supposed to protect TerraUSD from future depegs. 

These deals were probed by the SEC in a series of investigations. However, according to the lawsuit, both Kanav Kariya and DiSomma pleaded the Fifth hundreds of times when asked about these backdoor deals. 

Jump rejects new Terraform Labs lawsuit

Following this week’s lawsuit, a Jump spokesperson maintained the firm’s innocence and rejected Snyder’s claims.

They argued that Terraform Labs is trying “to shift blame and financial responsibility away from the crimes that Do Kwon committed.”

Jump has faced a litany of lawsuits and investigations over the years that repeat the same allegations, and in 2024, the firm began liquidating various DeFi positions to the tune of tens of millions of dollars. 

Crypto analyst Arkham claimed the firm had just $560 million in crypto at the time, down from the $9.6 billion it held in 2021. 

Read more: Do Kwon sentenced to 15 years for Terra/Luna fraud

It also shares ties with FTX, and allegedly withdrew $300 million from the exchange the day before it collapsed. Not only that, Jump allegedly colluded with Sam Bankman-Fried’s Alameda Research on seed funding rounds and yield farming investments.

Tai Mo Shan, a subsidiary of Jump, paid $123 million last year after the SEC charged the firm with “negligently” misleading investors about the stability of UST.

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