Jump Trading, a firm associated with Terraform Labs, has been accused in an Illinois district court lawsuit of manipulating the price of the collapsed algorithmic stablecoin, TerraUSD (UST). Court documents from May 9 suggest that Jump Trading bought millions of UST tokens in 2021 with an intent to artificially inflate its price to $1.
The plaintiff, Taewoo Kim, alleges that Jump Trading and its CEO, Kanav Kariya, breached the Commodity Exchange Act, Commodity Futures Trading Commission (CFTC) regulations, and engaged in common law unjust enrichment.
The lawsuit claims that Jump Trading was an early supporter and the primary financial contributor to Terraform Labs. From November 2019 to September 2020, Jump Trading allegedly made several agreements with Terraform and its affiliates. The agreements allowed Jump to borrow tens of millions of Terra LUNA tokens from Terra and to offer market-making services for LUNA, UST, and aUST transactions.
In return, Jump Trading had the opportunity to buy LUNA tokens at a significant discount, which could then be sold on the market for profit.
The legal filing states that in May 2021 — a year before Terra’s ecosystem collapsed — the UST stablecoin algorithm failed to maintain its $1 peg. This led Terraform and its CEO, Do Kwon, to orchestrate trades to support the token’s price:
“Rather than publicly admitting TFL’s algorithm’s failure to maintain UST’s advertised peg price (which was fundamental to the perceived market value of UST and aUST), TFL and Kwon secretly conspired with Defendant Jump to manipulate the market prices for UST and aUST by making secret, coordinated trades to maintain UST’s $1 peg.“
The alleged scheme involved Jump Trading buying over 62 million UST tokens between May 23 and May 27, 2021. This action reportedly artificially increased UST’s price to $1 and also inflated aUST’s price.
The court filing alleges that Terra and Kwon altered their initial agreements to reward Jump for its purported market manipulation. They reportedly gave Jump more than 61.4 million LUNA tokens at a discount of over 99% from their market price at the time. Jump allegedly later sold these LUNA tokens in the market for a profit exceeding $1.28 billion.
Cointelegraph tried to reach out to Jump Trading regarding the lawsuit but received no immediate response.
On March 13, Bloomberg reported that U.S. prosecutors are scrutinizing a Telegram chat group discussion involving Jump Trading, Alameda Research, and Jane Street Group about a potential TerraUSD stablecoin bailout.
The U.S. Justice Department is also investigating the stablecoin’s collapse, which led to a $40 billion loss in the Terra ecosystem in May 2022. The Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of New York have questioned former Terraform Labs staff recently.
Kwon was arrested in Montenegro in March for allegedly using fake documents. South Korean and U.S. authorities are seeking his extradition. He was released on bail for 400,000 euros on May 12 and is currently under house arrest.
