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 claims that the trading firm contributed to the 2022 downfall of the TerraUSD (UST) stablecoin and its associated token, Luna. In filings submitted to the Southern District of New York, Jane Street and its employees contended that the case is an attempt to deflect blame 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 the defendants, 'this case is an attempt by the estate of Terraform Labs to obtain funds from Jane Street to compensate for a fraud perpetrated by Terraform itself.' Jane Street argued that the primary 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. The founder acknowledged being 'alone responsible for everyone's pain.' Terraform's lawsuit, filed in January by administrator Todd Snyder, alleges that Jane Street engaged in insider trading, which accelerated the collapse. Snyder claims that the firm utilized nonpublic information from Terraform insiders to trade ahead of significant events, 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 may influence how responsibility for the collapse is assigned.