New Legal Battle Erupts: Jump Trading Faces $4 Billion Lawsuit Over Terra (LUNA) Collapse

The 2022 Terra (LUNA) collapse, an event that sent shockwaves across the global financial landscape and led to the evaporation of an estimated $40 billion in market value, has once again ignited a fierce legal battle. Terraform Labs’ bankruptcy administrator has formally initiated a lawsuit against the prominent quantitative trading firm Jump Trading and several of its top executives, seeking to hold them accountable for their alleged role in Terra’s downfall and demanding a staggering $4 billion in civil damages.

According to a detailed report by the Wall Street Journal, Todd Snyder, acting as Terraform Labs’ bankruptcy administrator, has filed the suit in court. The list of defendants extends beyond Jump Trading itself to include company co-founder William DiSomma and former president Kanav Kariya, who departed from his role in 2024.

The Catastrophic Terra Collapse: A Brief Recap

Terraform Labs, founded by Do Kwon, was the architect behind the algorithmic stablecoin TerraUSD (UST) and its sister cryptocurrency, LUNA. The ecosystem’s stability hinged on a complex mechanism designed to maintain UST’s 1:1 peg with the US dollar. However, in May 2022, this mechanism catastrophically failed. UST experienced a severe de-pegging, rapidly losing its dollar parity and plunging the entire ecosystem into a “death spiral.” This led to the hyperinflation of LUNA, a precipitous price crash, and the ultimate loss of $40 billion in market capitalization, triggering a cascade of bankruptcies across numerous cryptocurrency lending platforms.

In the wake of this unprecedented collapse, Terraform Labs eventually filed for bankruptcy in 2024. Its founder, Do Kwon, recently pleaded guilty to charges related to the collapse and was subsequently sentenced to 15 years in prison by a US court.

Allegations of Market Manipulation Against Jump Trading

Todd Snyder, the bankruptcy administrator, asserts that Jump Trading engaged in illicit “behind-the-scenes dealings” that exploited the Terraform Labs ecosystem. These actions, he claims, artificially inflated the value of TerraUSD (UST), thereby creating a deceptive illusion of a functional and stable mechanism. Snyder alleges that Jump Trading reaped billions in profits from these activities, ultimately contributing directly to the ecosystem’s catastrophic implosion.

The Wall Street Journal quoted Snyder stating, “Taking this action is a necessary step to hold Jump Trading accountable for its unlawful conduct, which directly led to one of the largest collapses in cryptocurrency history.”

A Precedent: Jump Trading’s Prior SEC Scrutiny

The intricate relationship between Jump Trading and Terraform Labs is not entirely new to public scrutiny. It was previously brought to light through investigative documents released by the US Securities and Exchange Commission (SEC).

Last year, the SEC accused Jump Trading’s cryptocurrency division, “Tai Mo Shan Limited,” of intervening during UST’s initial brief de-pegging in May 2021. The firm allegedly injected $20 million into the market to prop up the stablecoin. In exchange for this intervention, Tai Mo Shan reportedly received a substantial allocation of pre-unlocked LUNA tokens, which they then sold on the open market for significant profit.

According to the SEC’s complaint, this transaction misled investors, fostering a false sense of security regarding the stablecoin’s mechanism. Tai Mo Shan ultimately profited $1.28 billion from this deal and later paid approximately $123 million in fines to settle the SEC’s charges.

Jump Trading’s Vehement Denial

In response to the barrage of accusations, a spokesperson for Jump Trading issued a strong rebuttal. The firm characterized the lawsuit as a “desperate attempt to shift the blame for Terraform Labs and Do Kwon’s crimes onto others.” Jump Trading vehemently denied the allegations and affirmed its commitment to vigorously defending its reputation and innocence against these claims.

The Path to Recovery: A Long Road Ahead

While Terraform Labs has reportedly recovered approximately $300 million in assets to date, earmarked for creditor compensation, this sum represents only a fraction of the total losses incurred during the $40 billion collapse. The ongoing legal proceedings underscore the immense challenges in recouping damages from one of the cryptocurrency industry’s most devastating failures.