The bankruptcy administrator overseeing Terraform Labs’ wind-down has filed a federal lawsuit in Manhattan accusing quantitative trading firm Jane Street of using confidential inside information to exit $85 million in TerraUSD positions within minutes of a secret liquidity withdrawal — a move that allegedly helped trigger the $40 billion collapse of the UST-LUNA ecosystem in May 2022.
Lawsuit reignites scrutiny over Terra’s historic collapse
The case centers on claims that Jane Street used confidential, non-public information obtained through contacts inside Terraform Labs to execute trades that worsened the downfall of TerraUSD (UST), and it sister token LUNA.
The implosion erased roughly $40 billion in market value and triggered a wider crypto contagion affecting lenders, hedge funds and exchanges worldwide.
Todd Snyder, the bankruptcy administrator leading Terraform’s liquidation process, filed the complaint against Jane Street, its co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang.
The lawsuit alleges the firm misappropriated confidential information and manipulated market prices, allowing it to reduce exposure and profit while ordinary investors suffered heavy losses.
The legal action comes nearly four years after TerraUSD lost its dollar peg, triggering a death spiral that became one of crypto’s defining crises and ultimately contributed to broader industry failures.
Alleged insider access and the critical May 2022 trades
According to court filings, the lawsuit’s core allegation is that Jane Street gained privileged access to Terraform’s internal communications through a former Terraform intern who later worked at the trading firm.
The complaint claims this relationship enabled a back-channel source of material non-public information, including early awareness of liquidity movements involving TerraUSD.
One transaction highlighted in the lawsuit occurred on May 7, 2022, days before TerraUSD’s collapse became public.
Terraform reportedly withdrew 150 million UST from a major liquidity pool without announcing the move to markets.
Within roughly 10 minutes, a wallet allegedly linked to Jane Street withdrew or sold 85 million UST from the same pool, a trade the administrator argues helped spark a broader sell-off.
The lawsuit contends the timing allowed the trading firm to exit positions at precisely the right time, avoiding losses while market confidence rapidly deteriorated.
“Jane Street abused market relationships to rig the market in its favor during one of the most consequential events in crypto history.” Todd Snyder, Plan Administrator, Terraform Wind-Down Trust.
The complaint also references private chat communications involving Terraform founder Do Kwon and trading representatives during the crisis period.
Legal analysts say the case could become a landmark test of how insider trading laws apply in decentralized markets.
Jane Street rejects allegations, blames Terraform leadership
Jane Street has strongly denied the accusations, arguing that Terraform’s own misconduct, not external trading activity caused the collapse.
In statements provided to media outlets, the firm described the lawsuit as an attempt to shift blame away from Terraform’s management, which has already faced fraud findings and criminal penalties.
Terraform founder Do Kwon previously pleaded guilty to fraud-related charges in the United States and received a 15-year prison sentence.
This is reinforcing regulators’ view that internal design flaws and misleading claims about TerraUSD’s stability played a central role in the crash.
The competing narratives now set up a high-stakes legal battle: whether external trading behavior accelerated an inevitable collapse, or whether Terraform’s structural weaknesses alone caused the disaster.
Why the case matters for crypto investors and market structure
The lawsuit raises broader questions about transparency, market fairness and institutional influence in digital asset trading.
Unlike traditional equities markets, where insider trading rules are clearly defined, crypto markets operate across decentralized platforms with uneven disclosure standards.
If Snyder’s claims succeed, legal experts say courts could expand the definition of insider trading to include privileged access gained through informal communication channels or crisis-management discussions.
Such a precedent could reshape how hedge funds, market makers and liquidity providers interact with crypto projects, potentially forcing stricter compliance practices similar to those in regulated securities markets.
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The lawsuit also follows other recovery efforts tied to Terra’s collapse, including regulatory settlements and separate litigation against trading firms accused of profiting during the crisis.
Administrators are seeking damages, disgorgement of profits and compensation for creditors still attempting to recover losses years later.
As the litigation proceeds, the outcome could determine not only liability for one of crypto’s biggest failures but also how insider trading laws evolve in an industry increasingly shaped by institutional participation.
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