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 Terraform Labs bankruptcy estate, refuting allegations that the trading firm contributed to the 2022 instability of the TerraUSD (UST) stablecoin and its associated token, Luna. In two filings submitted to the Southern District of New York, Jane Street and several of its employees contended that the lawsuit is a misguided attempt to deflect accountability for the failure of the Terra ecosystem, which resulted in the loss of approximately $40 billion in value over a brief period. The firm requested that the court dismiss the complaint with prejudice, thereby preventing Terraform from pursuing the same claims in the future. The defendants asserted that the lawsuit is an attempt by Terraform Labs' estate to improperly obtain financial compensation from Jane Street for a fraud perpetrated by Terraform itself. Jane Street argued that the primary issues surrounding Terra's collapse have already been resolved in court, referencing the 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 alleged that the firm utilized non-public information from Terraform insiders to conduct trades prior to significant market movements, including substantial 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, with its downfall having a ripple effect across the crypto sector and 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 ultimately assigned.