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The lawsuit, filed in Illinois District Court, details Jump Trading’s alleged involvement with Terra Labs in manipulating the price of the TerraUSD (UST) algorithmic stablecoin. According to court documents dated May 9, the firm purchased millions of UST tokens in 2021, hoping to manipulate their value to reach $1.00.
Plaintiff Tae Kim accuses Jump and its CEO Kanawa Kariya of violating the Commodity Exchange Act and Commodity Futures Trading Commission (CFTC) rules, as well as common law unjust enrichment.
According to the lawsuit, Jump Trading was an early partner and primary financial backer of Terraform Labs. Between November 2019 and September 2020, Jump entered into several agreements with Terraform and its affiliates “to borrow tens of millions of LUNA tokens” from Terra and “provide market creation services for transactions in LUNA, UST, and aUST.”
In return, the agreements provided Jump Trading “the ability to purchase LUNA tokens at a deep discount, which could then be resold on the market to increase Jump’s own profits.”
According to the filing, in May 2021 — exactly one year before the collapse of the Terra ecosystem — the UST stablecoin algorithm failed to maintain its $1 peg, forcing Terraform and its CEO Do Kwon to coordinate trades to support the token’s price:
“Instead of publicly admitting the inability of the TFL algorithm to support the announced UST peg price (which was fundamental to the perceived market value of UST and aUST), TFL and Kwon conspired with Jump Defendant to manipulate the market prices of UST and aUST, forcing secret, coordinated trades in order to support the UST to its $1 peg.”
The alleged scheme was for Jump to purchase over 62 million UST tokens between approximately May 23-27, 2021, which artificially increased the price of UST to $1, which also caused the price of aUST to increase further.
To incentivize and reward Jump for alleged market manipulation, Terra and Kwon “agreed to change the parties’ previous agreements and instead unconditionally transfer over 61.4 million LUNA tokens to Jump at a discount of over 99% from their current market. Jump later resold these LUNA tokens to the market for a staggering profit of over $1.28 billion,” the lawsuit states.
Cointelegraph reached out to Jump Trading about the lawsuit but received no immediate response.
On March 13, Bloomberg reported that the U.S. Attorney’s Office was investigating a Telegram chat discussion involving Jump Trading, Alameda Research, and the Jane Street Group regarding a possible rescue of the TerraUSD stablecoin.
The US Department of Justice is also investigating the collapse of the stablecoin that wiped out $40 billion in the Terra ecosystem last May. Two agencies within the department — the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of New York — have questioned former Terraform Labs employees in recent weeks.
Kwon was arrested in March in Montenegro for allegedly using false documents. South Korean and US authorities are seeking his extradition. He is currently under house arrest after being released on bail of 400,000 euros on 12 May.