Jump Accused of Contributing to Collapse of Terraform, Do Kwon's Crypto Empire — WSJ
By Vicky Ge HuangThe administrator winding down what remains of Do Kwon's Terraform Labs has sued Jump Trading, alleging that the high-speed trading giant unlawfully profited from and contributed to the crypto empire's collapse.Todd Snyder, the plan administrator appointed by a bankruptcy court, is seeking $4 billion in damages from Jump, firm co-founder William DiSomma and Kanav Kariya, the one-time intern who rose to become president of Jump's crypto-trading business.Terraform collapsed in 2022 when its TerraUSD cryptocurrency, a so-called algorithmic stablecoin, lost its peg to the dollar. A sister token called Luna also plummeted to near zero within days of the depeg. Their $40 billion crash hurt hundreds of thousands of investors worldwide, some of whom lost their life savings nearly overnight. They also triggered a cascade of company failures in the crypto sector, ultimately culminating in the collapse of Sam Bankman-Fried's FTX exchange.Terraform, which filed for bankruptcy in January 2024, agreed to pay the Securities and Exchange Commission about $4.5 billion to settle a civil securities-fraud lawsuit just a few months later. Kwon, the brash entrepreneur who founded Terraform in 2018, was sentenced to 15 years in prison last week after pleading guilty to two criminal counts in August.The administrator alleged Thursday in the U.S. District Court for the Northern District of Illinois, Eastern Division, that Jump had entered into a secret deal to prop up TerraUSD before the coin's collapse, and later emerged from Terraform's collapse with billions of dollars in gains. The SEC has previously said in court filings that Jump made about $1 billion in profit by selling Luna."Jump Trading actively exploited the Terraform Labs ecosystem through manipulation, concealment, and self-dealing that enriched Jump while financially devastating thousands of unsuspecting investors," Snyder said in a statement. "This action is a necessary step to hold Jump Trading accountable for illegal conduct that directly caused the largest crypto collapse in history."And so far, about $300 million in assets has been recovered to compensate creditors, according to public filings."This is a desperate attempt by Terraform Labs to shift blame and financial responsibility away from the crimes that Do Kwon committed. We will defend ourselves vigorously against these baseless claims," said a Jump spokeswoman. A lawyer for Kariya had no immediate comment.As early as 2019, Jump and Terraform entered into a series of secret agreements that gave Jump the option to purchase millions of Luna tokens at prices far below market value and eventually resulted in billions of dollars in gains for Jump, according to the lawsuit. In one agreement, Jump was permitted to acquire millions of Luna tokens for 40 cents per token, when the market price rallied above $110 per token, it said.Jump also entered into a "gentlemen's agreement" with Terraform, in which the trading firm agreed to help maintain TerraUSD's peg to the dollar. The agreement was kept under wraps because Jump wanted to avoid any regulatory scrutiny, the lawsuit said.In May 2021, TerraUSD's value fell below $1 but recovered after it was secretly propped up by Jump. Following this depegging event, Jump falsely told the public that TerraUSD recovered because its algorithm worked, when it was really Jump's purchases of TerraUSD that restored the coin to its $1 peg, the lawsuit said.After TerraUSD's algorithmic weakness was exposed, the lawsuit said, Jump negotiated the removal of vesting requirements in its contracts with Terraform, allowing the trading firm to receive monthly installments of Luna tokens and sell them on the open market unencumbered by traditional lockup periods.The initial depeg prompted the creation of Luna Foundation Guard, a reserve of bitcoin and other crypto resources designed to protect TerraUSD against subsequent depegs. However in May 2022, when TerraUSD depegged again and then succumbed to a death spiral, the foundation — which was essentially being directed by Kwon and Jump's Kariya — transferred nearly 50,000 bitcoin to Jump without any written agreement regarding how they would be used, per the suit.The suit also alleged that Jump's DiSomma called leaders at various other crypto trading firms to seek bailout funding for Terra. These efforts allegedly hastened the downfall of Terraform after some aggressive trading firms used that information to trade against the stablecoin and its sister token, Luna.In December 2024, Tai Mo Shan, a unit of Jump, agreed to pay $123 million to settle an investigation stemming from its dealings with Kwon and Terraform in May 2021. When questioned by the SEC, both Kariya and DiSomma invoked their Fifth Amendment rights hundreds of times, per the lawsuit. Kariya left Jump last year.Write to Vicky Ge Huang at [email protected]