The bankruptcy plan administrator for Terraform Labs, Todd Snyder, has initiated legal action against Jane Street Group. This lawsuit alleges that the trading giant engaged in front-running trades that enabled them to profit from confidential information sourced from insiders at Terraform, as reported by The Wall Street Journal on Monday.
In the complaint filed in federal court in Manhattan, it is asserted that these trades not only benefited Jane Street financially but also played a significant role in the swift downfall of the TerraUSD (UST) stablecoin and its sister token LUNA back in May 2022.
The lawsuit also includes Jane Street co-founder Robert Granieri along with employees Bryce Pratt and Michael Huang as additional defendants.
The catastrophic failure of Terraform in May 2022 resulted in an estimated loss of $40 billion when its dollar-pegged stablecoin TerraUSD lost its value peg, causing LUNA to plummet nearly to zero within just a few days.
Snyder is also pursuing a separate claim amounting to $4 billion against Jump Trading. He accuses this firm of engaging in market manipulation by initially supporting TerraUSD before retracting their backing, which allegedly led to around $1 billion in profits for them.
Federal prosecutors based in Manhattan have previously examined Telegram conversations among personnel from Jump Trading, Jane Street, and Alameda Research concerning a potential rescue operation for TerraUSD.
This investigation sought to determine whether these discussions could be classified as market manipulation prior to the collapse of the stablecoin. The fallout rendered UST and LUNA virtually worthless and instigated numerous bankruptcies across firms such as Three Arrows Capital, Voyager Digital, and FTX.
Do Kwon, founder of Terraform Labs, has admitted guilt regarding fraud charges related to deceptive statements about the stability mechanisms behind his stablecoin. He was subsequently sentenced to 15 years imprisonment.