Court Urged to Dismiss Claims Against Jane Street Over UST-LUNA Collapse

Jane Street has petitioned a US court to dismiss a lawsuit filed by Terraform Labs' bankruptcy estate, which alleges that the trading firm contributed to the 2022 collapse of TerraUSD (UST) and its associated token, Luna. In Thursday's filings to the Southern District of New York, Jane Street and its employees asserted that the case is a misguided attempt to deflect responsibility for the Terra ecosystem's downfall, which wiped out roughly $40 billion in value over several days. The firm is seeking a dismissal with prejudice, which would prevent Terraform from pursuing the same claims in the future. According to Jane Street, the lawsuit is an effort by Terraform Labs' estate to 'extract cash' and shift the blame for a fraud perpetrated by Terraform itself. The defendants 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 is currently serving a 15-year prison sentence after pleading guilty to conspiracy and wire fraud. 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 exacerbated the collapse. Snyder claims that Jane Street used confidential 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 alleges 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 have significant implications for how responsibility for the collapse is assigned.