Jane Street Seeks Dismissal of Lawsuit Linked to UST-LUNA Collapse

Jane Street has filed a motion with a US court to dismiss a lawsuit brought by the bankruptcy estate of Terraform Labs, contesting allegations that the trading firm played a role in the 2022 collapse of the TerraUSD stablecoin and its associated token, Luna. In filings submitted to the Southern District of New York, Jane Street and several of its employees argued that the case is an attempt to deflect blame for the failure of the Terra ecosystem, which resulted in the loss of approximately $40 billion in value over the course of several days. The firm urged the court to dismiss the complaint with prejudice, thereby preventing Terraform from pursuing the same claims in the future. According to Jane Street, the lawsuit is an attempt by Terraform's estate to hold the trading firm financially responsible for a fraud perpetrated by Terraform itself. Jane Street pointed out that the core issues surrounding Terra's collapse have already been resolved in court, citing criminal and civil cases against Terraform founder Do Kwon, who pleaded guilty to conspiracy and wire fraud and is currently serving a 15-year prison sentence. A jury also found Kwon and Terraform liable for securities fraud, with Kwon acknowledging that he was 'alone responsible for everyone's pain.' Terraform's lawsuit, filed in January by administrator Todd Snyder, accuses Jane Street of engaging in insider trading that accelerated the collapse. Snyder alleges that the firm used non-public information obtained from Terraform insiders to trade ahead of significant market moves, including large withdrawals from the Curve liquidity pool that preceded UST losing its dollar peg. For instance, the complaint claims that Terraform withdrew 150 million UST on May 7, 2022, and that a wallet linked to Jane Street pulled 85 million UST minutes later, triggering market panic. Jane Street disputes this narrative and denies any involvement in the collapse. The company maintains that Terraform's fraud scheme, in which Jane Street had no involvement, has already been prosecuted, adjudicated, and punished. Terraform Labs, founded in 2018, filed for bankruptcy in January 2024, and its downfall had a ripple effect across the crypto sector, contributing to the failures of several firms with exposure to the project. The court's decision on Jane Street's motion could have significant implications for how responsibility for the collapse is assigned.