Jump Trading Hit with $4 Billion Lawsuit Over Terraform Collapse

Another crypto giant gets a legal wake-up call. Jump Trading, the secretive quantitative powerhouse, now faces a staggering $4 billion lawsuit tied to the spectacular implosion of Terraform Labs.

The Allegations

The suit claims Jump played a pivotal role in the ecosystem's stability—or lack thereof. Plaintiffs argue the firm's algorithmic maneuvers and market-making activities weren't just neutral trading but actions that propped up the doomed stablecoin before its catastrophic depeg.

A $4 Billion Question

That eye-watering figure isn't plucked from thin air. It represents the estimated damages sought from investors who watched their holdings evaporate overnight. The legal filing paints a picture of sophisticated actors with outsized influence over a retail-heavy market—a classic tale of asymmetric information where the house always seems to win.

Regulatory Reckoning

This lawsuit throws gasoline on the already raging fire of post-collapse regulatory scrutiny. It moves the narrative from 'who failed' to 'who might have knowingly benefited.' Expect every major player's trades during that period to get the forensic accounting treatment.

The Fallout Spreads

Jump's deep involvement highlights how interconnected—and fragile—the crypto infrastructure remains. When a foundational protocol crumbles, the tremors reach even the most fortified towers of traditional finance, proving once again that in crypto, risk is never truly siloed—it's just cleverly repackaged and sold to the next buyer.

Secret deals and market manipulation

The lawsuit alleges Jump Trading secretly propped up TerraUSD before its collapse. According to Snyder, Jump entered into agreements that allowed it to buy millions of LUNA tokens far below market price. 

In one of the transactions, Jump bought tokens at 40 cents, although prices in the market were over $110. In another agreement, there was a “gentleman’s agreement” that allowed Jump to hold the peg of the stablecoin TerraUSD. This was done while keeping the activity anonymous in order not to trigger regulation.

In May 2021, TerraUSD experienced temporary depegging but rebounded because of the secretive purchases by Jump. In the lawsuit, it was alleged that TerraUSD’s recovery was caused by TerraUSD’s algorithm, as claimed by Jump.

Later, Jump negotiated to remove vesting restrictions, which enabled free sales of Luna tokens. The lawsuit also draws attention to Jump’s involvement in transferring almost 50,000 Bitcoin (BTC) from Luna Foundation Guard during TerraUSD’s fatal de-peg occurrence in May 2022. 

Broader implications in crypto

Jump’s alleged actions extended beyond Terraform. The lawsuit claims DiSomma sought bailout funding from other trading firms, inadvertently accelerating the collapse. Previously, Tai Mo Shan, a Jump unit, settled with the SEC for $123 million over related dealings. Kariya and DiSomma reportedly invoked their Fifth Amendment rights hundreds of times during investigations.

The lawsuit against Jump shows how risky crypto trading can be when big players manipulate markets. It highlights the need for stricter rules to protect everyday investors. 

This case is nothing different to other big crypto scandals. Caroline Ellison, ex-CEO of Alameda Research, was recently moved to a halfway house after serving 11 months in prison for her role in FTX’s $10 billion collapse. She admitted to working with Sam Bankman-Fried (SBF) to misuse customer funds. These cases show regulators are cracking down on crypto insiders and trading firms. 

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