A lawsuit has been filed in an Illinois district court alleging that Jump Trading participated in manipulating the price of TerraUSD (UST), an algorithmic stablecoin, through its partnership with Terraform Labs. According to court documents, Jump Trading purchased millions of UST tokens in 2021 with the intention of manipulating their value to reach $1, violating the Commodity Exchange Act and CFTC regulations.
The lawsuit also accuses Jump of unjust enrichment. Jump was a primary financial backer of Terraform Labs and borrowed tens of millions of LUNA tokens in exchange for market-making services for transactions in LUNA, UST, and aUST. In May 2021, when the UST stablecoin algorithm failed to maintain its $1 peg, Terraform and its CEO Do Kwon allegedly coordinated trades with Jump to manipulate the market prices for UST and aUST.
Jump trading manipulation
To incentivize Jump’s manipulation, Terra and Kwon agreed to modify their prior agreements and convey more than 61.4 million LUNA tokens to Jump at a steep discount, which Jump later resold for a profit of over $1.28 billion. The U.S. Justice Department is investigating the stablecoin collapse and prosecutors are examining a chat group discussion involving Jump Trading, Alameda Research, and Jane Street Group regarding a potential TerraUSD stablecoin bailout. Do Kwon was arrested in March for allegedly using false documents and is currently under house arrest after being released on bail.
The stablecoin collapse caused a $40 billion wipeout in the Terra ecosystem last May. The Federal Bureau of Investigation and the Attorney’s Office for the Southern District of New York have interrogated former staff at Terraform Labs in recent weeks as part of their investigation.
The allegations in the lawsuit are serious and, if proven, could have significant consequences for Jump Trading and its CEO Kanav Kariya. In addition to the legal and regulatory implications, the allegations could damage Jump’s reputation and erode trust in the cryptocurrency market. The case highlights the need for greater transparency and accountability in the cryptocurrency industry to prevent market manipulation and protect investors. As the cryptocurrency market continues to grow and mature, regulators and industry players will need to work together to establish clear rules and standards that promote fairness and integrity in the market.
