Jump Trading faces lawsuit over alleged $1.3B profit from TerraUSD

A lawsuit filed in an Illinois district court details Jump Trading’s alleged involvement with Terraform Labs in manipulating the price of failed algorithmic stablecoin TerraUSD (UST). According to court documents from May 9, the firm purchased millions of UST tokens in 2021, hoping to manipulate its value to reach $1. 

Plaintiff Taewoo Kim is accusing Jump and its CEO, Kanav Kariya, of violating the Commodity Exchange Act, Commodity Futures Trading Commission (CFTC) regulations, and of common law unjust enrichment.

According to the lawsuit, Jump Trading was an early partner and primary financial backer of Terraform Labs. Between November 2019 and September 2020, Jump entered into several agreements with Terraform and its affiliates “to borrow tens of millions of [Terra] LUNA tokens” from Terra and “provide market-making services for transactions in LUNA, UST and aUST.“

In exchange, the agreements would grant Jump Trading “the opportunity to purchase LUNA tokens at a steep discount, which could then be resold into the market to further Jump’s own profit.“

According to the filing, in May 2021 — exactly one year before Terra’s ecosystem collapsed — the UST stablecoin algorithm failed to keep its $1 peg, leading Terraform and its CEO Do Kwon to coordinate trades to prop up the token price:

“Rather than publicly acknowledging the inability of TFL’s algorithm to maintain UST’s advertised peg price (which was fundamental to the perceived market value of UST and aUST), TFL and Kwon secretly schemed with Defendant Jump to manipulate the market prices for UST and aUST by making secret, coordinated trades to prop up UST to its $1 peg.“

The purported scheme involved Jump purchasing more than 62 million UST tokens between May 23 and May 27, 2021, causing UST’s price to artificially rise to $1 and increasing aUST’s price.

To incentivize and reward Jump for its alleged manipulation of the markets, Terra and Kwon “agreed to modify the parties’ prior agreements and instead unconditionally convey to Jump more than 61.4 million LUNA tokens at a greater than 99% discount from their then-current market price. Jump later resold those LUNA tokens into the market at a staggering profit of over $1.28 billion,” claims the court filing.

Cointelegraph reached out to Jump Trading regarding the lawsuit but did not receive an immediate response.

On March 13, Bloomberg reported that United States prosecutors are examining a chat group discussion on Telegram involving Jump Trading, Alameda Research and Jane Street Group regarding a potential TerraUSD stablecoin bailout.

The U.S. Justice Department is also investigating the stablecoin collapse, which contributed to a $40 billion wipeout in the Terra ecosystem in May 2022. Two agencies in the department — the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of New York — have interrogated former staff at Terraform Labs in recent weeks.

Kwon was arrested in Montenegro in March for allegedly using false documents. South Korean and U.S. authorities are seeking his extradition. He is currently under house arrest after being released on bail for 400,000 euros on May 12.

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