Jane Street Seeks Dismissal of Terraform Lawsuit Tied to UST-LUNA Collapse

Jane Street has petitioned a US court to dismiss a lawsuit filed by the bankruptcy estate of Terraform Labs, contesting allegations that the trading firm contributed to the 2022 collapse of the TerraUSD stablecoin and its companion token, Luna. In filings submitted to the Southern District of New York, Jane Street and its employees argued that the lawsuit is an effort to deflect responsibility for the failure of the Terra ecosystem, which resulted in the loss of approximately $40 billion in value over several days. The firm requested that the court 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 Labs' estate to hold the company financially responsible for a fraud perpetrated by Terraform itself. The defendants contended 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, alleged that Jane Street engaged in insider trading, utilizing nonpublic information 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 claimed 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 disputed this narrative and denied any involvement in the collapse. The company maintained 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 exposed to the project. The court's decision on Jane Street's motion may influence how responsibility for the collapse is assigned.