Jane Street has asked a U.S. court to dismiss a lawsuit accusing it of insider trading linked to the TerraUSD collapse.
Summary
- Jane Street has asked a U.S. court to dismiss Terraform’s lawsuit, arguing the claims attempt to shift blame for the Terra collapse.
- The lawsuit alleges the firm used non-public information to trade around key liquidity moves before UST lost its dollar peg in May 2022.
- Jane Street says trading decisions were based on public information and points to prior fraud rulings against Terraform and Do Kwon.
In a filing before the Southern District of New York, and shared with crypto.news, the trading firm 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 case is an attempt by the estate of Terraform Labs to extract cash from Jane Street to foot the bill for a fraud that Terraform itself perpetrated on the market,” the defendants wrote.
Jane Street is seeking a complete dismissal, arguing the lawsuit tries to shift responsibility for one of crypto’s largest collapses and does not meet the standard required to move forward.
Looking back to the origins of the case, the lawsuit was filed in February by court-appointed bankruptcy administrator Todd Snyder, who alleged that Jane Street used confidential information to trade ahead of the May 2022 meltdown. That event erased about $40 billion in market value and triggered widespread fallout across crypto markets.
Details outlined in the complaint point to alleged information flows between Terraform insiders and Jane Street traders. A former Terraform intern, Bryce Pratt, who later joined the firm, was said to have helped maintain communication channels with former colleagues. Those links, along with group chats involving Terraform co-founder Do Kwon, were cited as possible paths for sharing sensitive information.
“Jane Street abused market relationships to rig the market in its favor during one of the most consequential events in crypto history,” Snyder said at the time.
Focus quickly turns to May 7, 2022, when Terraform withdrew 150 million TerraUSD from a key Curve liquidity pool. Minutes later, a wallet tied to Jane Street withdrew 85 million tokens from the same pool. The complaint claims that move accelerated selling pressure and contributed to UST losing its dollar peg.
According to the filing, the firm used early access to those liquidity changes to unwind large UST positions and build trades that benefited from the collapse.
Jane Street rejects allegations
Addressing the claims, Jane Street argued that the timeline cited by Terraform does not prove access to non-public information. The firm said key changes, including Terraform’s shift to a new liquidity pool, had already been disclosed publicly weeks in advance.
“Plaintiff points to the timing of Terraform’s transition to a new liquidity pool, but admits that the transition was publicly announced weeks earlier, acknowledges there was no market reaction to the announcement, and offers no plausible explanation for why the transition would have any impact on UST’s value,” the filing states.
Trading records referenced in the motion indicate that some of the firm’s largest positions were built after concerns around TerraUSD had already entered the public domain. Activity across May 7 and May 8, including asset sales and short positioning, does not in itself demonstrate the use of confidential information, the defendants argued.
Earlier statements from the firm also pushed back on the claims, calling the lawsuit a “desperate” effort to “extract money” and describing the allegations as “baseless, opportunistic claims.”
Turning to legal arguments, Jane Street said the core misconduct tied to Terraform has already been addressed through separate proceedings.
“Terraform’s fraud scheme — in which Jane Street had no involvement — has already been prosecuted, adjudicated, and punished,” the filing reads.
Do Kwon pleaded guilty to conspiracy and wire fraud and is serving a 15-year sentence, while a jury previously found both Kwon and Terraform liable for securities fraud. The filing also notes that Kwon admitted he was “alone responsible for everyone’s pain.”
Legal strategy also invokes the Wagoner rule, which limits a bankruptcy estate’s ability to sue third parties for losses tied to its own wrongdoing. On top of that, the defendants questioned whether the disputed trades took place in the United States, raising doubts over the court’s jurisdiction.
