Jane Street Seeks Dismissal of Terraform Lawsuit Over UST-LUNA Collapse

Jane Street has filed a motion with a U.S. court to dismiss a lawsuit brought by the bankruptcy estate of Terraform Labs, contesting claims that the firm contributed to the 2022 collapse of the TerraUSD (UST) stablecoin and its sister token Luna. In filings submitted to the Southern District of New York, Jane Street and its employees argue that the case is an attempt to deflect responsibility for the failure of the Terra ecosystem, which resulted in the loss of approximately $40 billion in value within days. The firm is urging 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 Labs' estate to hold the firm financially responsible for a fraud perpetrated by Terraform itself. The defendants assert 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 has pleaded guilty to conspiracy and wire fraud and is currently serving a 15-year prison sentence. A jury has 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 by administrator Todd Snyder in January, alleges 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 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, sparking market panic. Jane Street disputes this narrative and denies any involvement in the collapse. The firm maintains that 'Terraform's fraud scheme — in which Jane Street had no involvement — has already been prosecuted, adjudicated, and punished.' Founded in 2018, Terraform Labs 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 could significantly impact how responsibility for the collapse is assigned.