Jane Street seeks dismissal of Terraform lawsuit tied to Terra crash

Jane Street has moved to dismiss a lawsuit brought by Terraform Labs’ bankruptcy estate, arguing the claims attempt to shift responsibility for the Terra-Luna collapse.

In a filing before the Southern District of New York, the trading firm and several individual defendants said the case lacks merit and should be thrown out with prejudice, which would prevent the claims from being filed again.

“This case is an attempt by the estate of Terraform Labs to extract cash from Jane Street to foot the bill for a fraud that Terraform itself perpetrated on the market,” the defendants wrote.

Legal fallout tied to Terra collapse

Looking back to the origins of the dispute, the case stems from a February complaint filed by bankruptcy administrator Todd Snyder, who accused Jane Street and its employees of using confidential information to trade ahead of the May 2022 collapse. 

The fallout wiped out roughly $40 billion in value and sent shockwaves across crypto markets.

Snyder’s filing alleged that the firm gained access to material non-public information through contacts within Terraform, including a former intern who later joined Jane Street. 

Communication channels, including a group chat involving Terraform co-founder Do Kwon, were cited as possible conduits for sensitive information during a period when TerraUSD was under pressure.

Central to the complaint were events on May 7, 2022, when Terraform withdrew 150 million TerraUSD from a key liquidity pool. 

According to the lawsuit, a wallet linked to Jane Street withdrew 85 million tokens from the same pool minutes later, a move that allegedly triggered a cascade of selling as the stablecoin lost its dollar peg.

Jane Street disputes insider trading claims

Addressing those allegations, the firm argued that Terraform has failed to show that any trades relied on undisclosed information. 

“Plaintiff points to the timing of Terraform’s transition to a new liquidity pool, but admits that the transition was publicly announced weeks earlier, acknowledges there was no market reaction to the announcement, and offers no plausible explanation for why the transition would have any impact on UST’s value,” the filing states.

Records cited by the defendants show that some of Jane Street’s largest positions were taken after key details about TerraUSD’s instability had already entered the public domain. 

Activity around May 7 and May 8, including asset sales and the buildup of a short position, does not in itself demonstrate access to privileged information, the firm argued.

Legal arguments focus on prior rulings

Framing its defence around earlier enforcement outcomes, Jane Street said the underlying conduct at Terraform has already been addressed through criminal and civil proceedings. 

“Terraform’s fraud scheme — in which Jane Street had no involvement — has already been prosecuted, adjudicated, and punished,” the filing reads.

Do Kwon, Terraform’s founder, pleaded guilty to conspiracy and wire fraud charges and is serving a 15-year sentence, while a jury previously found both Kwon and Terraform liable for securities fraud. 

The filing notes that Kwon admitted he was “alone responsible for everyone’s pain.”

Legal arguments also invoke the “Wagoner rule,” which limits a bankruptcy estate’s ability to sue third parties over losses caused by its own fraud. 

Alongside that, the defendants contend that Terraform has not established that the disputed trades took place in the United States, raising questions over jurisdiction.

Seeking a full dismissal, Jane Street maintains that the claims do not meet the threshold required to proceed, positioning the case as part of the ongoing legal aftermath of one of crypto’s largest failures.