Terraform bankruptcy lawsuit targets Jane Street over Terra collapse

The administrator overseeing the bankruptcy of Terraform Labs has launched a lawsuit against trading firm Jane Street, alleging that the firm used confidential information to trade ahead of the collapse of the Terra ecosystem.

The complaint, filed in Manhattan federal court, claims the trading activity intensified market stress as TerraUSD was losing its peg to the US dollar in May 2022.

The case adds a new legal chapter to the fallout from one of the largest failures in crypto history.

Terraform’s collapse erased about $40 billion in market value and triggered turmoil across digital asset markets.

Insider trading claims

On Monday, Todd Snyder, the court-appointed administrator for Terraform’s bankruptcy, sued Jane Street, its co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang.

The complaint accuses them of misappropriating confidential information and manipulating market prices linked to the Terra blockchain.

The heavily redacted filing alleges that Jane Street used connections with Terraform insiders to obtain material non-public information.

According to the complaint, the firm relied on that information to sell tokens tied to the Terra ecosystem before the crash.

Jane Street said the lawsuit was an attempt to extract money and argued that losses suffered by Terra and Luna holders resulted from a multi-billion-dollar fraud committed by Terraform Labs management.

Trading contacts

The lawsuit traces the relationship between the two firms back to 2018, when Jane Street onboarded Terraform for trading.

However, the complaint states that significant Terra token trading did not begin until 2022.

Snyder alleges that Pratt, a former Terraform intern who later worked at Jane Street, reestablished communication with former colleagues.

The filing claims he set up communications with Terraform’s business development lead, which allegedly became a back-channel source of material non-public information.

The complaint further alleges that Pratt created a group chat with Terraform co-founder Do Kwon during the period when TerraUSD was under pressure.

Liquidity pool sales

Central to the case are events on May 7, 2022.

According to the lawsuit, Terraform withdrew 150 million TerraUSD tokens from a liquidity pool used for stablecoin trading without publicly announcing the move.

The complaint claims that within 10 minutes of that withdrawal, a wallet allegedly linked to Jane Street withdrew 85 million TerraUSD from the same liquidity pool.

The complaint alleges that it triggered a fire sale that led to the collapse of the Terra ecosystem.

Snyder argues that Jane Street used sensitive information not available to the broader market to reduce its exposure by selling hundreds of millions of dollars in potential losses hours before the system unravelled.

The lawsuit also alleges that the firm continued to use confidential insights to inform trading decisions as TerraUSD fell further from its dollar peg.

Terraform filed for bankruptcy in the US in 2024.

Its co-founder, Do Kwon, was later arrested and pleaded guilty in the US to two fraud charges.

He was sentenced to 15 years in prison in December.

Snyder is seeking damages, disgorgement, and interest from Jane Street and has requested a jury trial in Manhattan federal court.