Jane Street lawsuit targets insider trading in Terra crash

The court fight over the Terra ecosystem has escalated after a new jane street lawsuit was filed that ties high-speed trading to the historic crypto collapse.

Terraform bankruptcy administrator sues Jane Street

Terraform Labs‘ court-appointed bankruptcy administrator Todd Snyder has sued high-frequency trading firm Jane Street, alleging it used confidential information to front-run the 2022 Terra ecosystem meltdown. The complaint was lodged in Manhattan federal court on Monday and targets the firm as well as senior figures.

According to the filing, the defendants include Jane Street co-founder Robert Granieri and employees Bryce Pratt and Michael Huang. Moreover, Snyder argues that their trading activity during the critical days in May 2022 deepened the crisis that wiped out roughly $40 billion in market value.

The lawsuit claims Jane Street obtained material non-public information through undisclosed channels with Terraform Labs insiders. It accuses the firm of using those details to unwind large positions in Terra tokens at precisely the right moment, ahead of the wider market’s awareness of the problems.

Background to the TerraUSD and Luna implosion

Terraform Labs, founded in 2018 by Do Kwon and Daniel Shin, built the Terra blockchain and its algorithmic stablecoin, TerraUSD. The stablecoin was designed to hold a 1:1 peg with the US dollar through an arbitrage mechanism involving its sister token Luna.

In early May 2022, that structure began to unravel. On May 2022, TerraUSD slipped off its dollar peg and quickly lost market confidence. Within days, Luna collapsed to nearly zero, and about $40 billion in value across the Terra ecosystem vanished in under a week, shaking the broader crypto market.

The new suit links Jane Street’s trading to those pivotal days. However, it stops short of asserting that the firm alone caused the TerraUSD failure, instead framing its role as one that allegedly accelerated an already fragile situation.

The May 7 Curve3pool withdrawal and 10-minute trade

The complaint traces the crucial sequence to May 7, 2022, when Terraform quietly pulled 150 million TerraUSD from Curve3pool, a decentralized stablecoin trading platform. There was no public disclosure of this large liquidity withdrawal at the time.

According to Snyder, less than 10 minutes later a wallet linked to Jane Street sold 85 million TerraUSD into that same Curve3pool. The lawsuit characterizes this as Jane Street’s largest-ever single swap and a turning point in the market’s confidence in the TerraUSD stablecoin.

Snyder alleges that this huge sale helped trigger a broader fire sale of TerraUSD, intensifying the already building pressure on the algorithmic stablecoin. Moreover, the filing claims Jane Street continued to trade aggressively as prices deteriorated, still relying on non-public information from Terraform insiders.

Alleged back-channel communications with Terraform

The relationship between Jane Street and Terraform dates back to 2018, when Terraform first brought the trading firm on as a liquidity and market-making partner. Activity on the account reportedly surged in 2022, after Bryce Pratt, a former Terraform intern, reconnected with his previous colleagues at the company.

Pratt is accused in the complaint of creating a private communication channel with Terraform’s business development lead. The lawsuit describes this as a “back-channel source for material non-public information” about Terraform’s plans and liquidity moves, including actions affecting TerraUSD.

That said, the filing has yet to provide internal Terraform communications to fully substantiate the alleged flow of confidential information. Those details are likely to become a central focus during discovery and any eventual trial.

Do Kwon, Bitcoin offers and Jump Trading reference

On May 9, as TerraUSD continued to slide further from its peg, Pratt allegedly sent a group message to Do Kwon and other Terraform staff. In that message, he offered that Jane Street could purchase Bitcoin or Luna, a move the complaint suggests was informed by the firm’s trading strategy during the crisis.

Kwon’s response, as quoted in the suit, referenced Jump Trading co-founder Bill DiSomma and the firm’s fundraising activities. However, the complaint does not accuse Jump Trading of wrongdoing in relation to this specific exchange; it focuses instead on Jane Street’s decision-making and access to information.

Terraform Labs filed for bankruptcy in January 2024, nearly two years after the collapse. Later, Do Kwon was arrested and pleaded guilty to two counts of fraud. In December 2024, he received a 15-year prison sentence, underscoring the severe legal fallout from the Terra failure.

Relief sought and Jane Street’s response

Snyder is asking the court to award damages, disgorgement of profits and interest from Jane Street, with the case to be decided at a jury trial. The complaint positions this action as part of a broader effort to recover funds for creditors affected by the Terra meltdown.

Jane Street has firmly rejected the accusations. A spokesperson for the firm described the claims as “baseless” and labeled the filing a “desperate” attempt to extract money. Moreover, the statement argues that the heavy losses suffered by TerraUSD and Luna holders were caused by what it calls a multibillion-dollar fraud perpetrated by management at Terraform Labs, rather than by any misconduct at the trading firm.

The case, centered on the jane street lawsuit and the events surrounding the TerraUSD crash, is proceeding in Manhattan federal court. Its outcome could set an important precedent for how courts treat alleged insider trading in complex crypto markets.

In summary, the lawsuit against Jane Street adds another high-profile legal front to the fallout from Terra’s collapse, with Snyder seeking to prove that strategic trades based on private information deepened one of crypto’s most dramatic failures.