Jump Trading Hit With $4b Lawsuit Tied To $50b Terra Crash: Wsj

Terraform Labs sued Jump Trading and senior executives for $4 billion, alleging the firm manipulated Terra’s ecosystem and unlawfully profited from the crash, the WSJ reported.

The administrator of Terraform Labs’ bankruptcy, Todd Snyder, has filed a lawsuit seeking $4 billion in damages from trading company Jump Trading and multiple executives.

According to a Friday Wall Street Journal report, the lawsuit alleges that Jump Trading unlawfully profited from and contributed to the 2022 crash of Terra. Alongside the company, the suit is also aimed at its co-founder, William DiSomma, and the former president of the crypto trading department, Kanav Kariya.

Terraform Labs and the Terra blockchain ecosystem collapsed in 2022 when its native algorithmic stablecoin, TerraUSD (UST), lost its peg to the US dollar. The stablecoin was backed by a Terra inflationary mechanism, and when the peg was lost, the LUNA token saw an issuance and sell-off shock. The crash led to about $50 billion in losses.

Snyder reportedly said in the filing that Jump “actively exploited” the Terraform ecosystem through manipulation and self-dealing, and that the lawsuit is aimed at recovering losses for creditors and harmed investors, the WSJ reported.

Jump Trading did not immediately respond to Cointelegraph’s request for comment. The WSJ reported that Jump has denied the allegations.

Related: From TerraUSD to YU: Why stablecoins fail to hold $1 and the risks investors can’t ignore

According to the report, the new lawsuit claims that Jump and Terraform entered into a series of secret agreements. The trading firm would have the option to purchase large quantities of LUNA at a steep discount, having been permitted to acquire millions of LUNA at $0.40 when it was trading at over $110.

In exchange, Jump Trading was also reportedly expected to keep TerraUSD’s peg to the US dollar, which would hide faults in the algorithmic peg mechanism. The lawsuit also reportedly claims that this was kept as a secret “gentlemen’s agreement” to avoid regulatory scrutiny. Following the first depegging event, the trading company also allegedly claimed that the peg was restored thanks to the mechanism, rather than disclosing its involvement.

According to the WSJ, the lawsuit states that the Luna Foundation Guard Bitcoin (BTC) reserve, which was meant to protect TerraUSD against depegs, was directed by Terraform co-founder and CEO Do Kwon and Kariya. This organization reportedly transferred nearly 50,000 BT

Source: CoinTelegraph