Jane Street Seeks Dismissal of Terraform Lawsuit Linked 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 court filings submitted on Thursday to the Southern District of New York, Jane Street and several of its employees asserted that the case represents an effort to deflect responsibility 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 has urged the court to dismiss the complaint with prejudice, thereby preventing Terraform from pursuing the same claims in the future. According to the defendants, 'this case is an attempt by the estate of Terraform Labs to obtain compensation from Jane Street for a fraud that Terraform itself perpetrated on the market.' Jane Street contended that the primary issues underlying 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. As stated in the filing, Kwon acknowledged being '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 utilized nonpublic information from Terraform insiders to trade ahead of significant 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. The company's downfall had far-reaching consequences for 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.