A lawsuit filed in Illinois District Court details Jump Trading's alleged involvement in Terraform Labs' manipulation of the price of its failed algorithmic stablecoin, TerraUSD (UST). According to court documents dated May 9, the company purchased million s of UST tokens in 2021 in hopes of manipulating their value to $1.
Plaintiff Taewoo Kim accused Jump and its CEO Kanav Kariya of violating the Commodity Exchange Act, Commodity Futures Trading Commission (CFTC) regulations, and 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 multiple agreements with Terraform and its affiliates to "borrow tens of millions" of [Terra] LUNA tokens from Terra " and "provide market-making services." In exchange, these agreements will grant Jump Trading "the opportunity to purchase LUNA tokens at a substantial discount, which can then be resold into the marketplace to further enhance Jump's own profits."
According to the filing, in May 2021 a year before the Terra ecosystem collapsed the UST stablecoin algorithm failed to maintain its $1 peg, leading Terraform and its CEO Do Kwon to coordinate a transaction to shore up the $1 peg. Token Price:
"Instead of publicly acknowledging that TFL's algorithm was unable to maintain the advertised pegged price of UST (which is the basis for the market value of UST and aUST), TFL and Kwon secretly inspired with defender Jump to manipulate the market price of UST and aUST in a secret, coordinated manner Trade to support UST peg to $1." Jump allegedly purchased over 62 million UST tokens between May 23 and May 27, 2021, causing the price of UST to artificially rise to $1 and boosting the price of aUST.
To incentivize and reward Jump for allegedly manipulating the market, Terra and Kwon "agreed to amend their previous agreement to instead unconditionally provide Jump with over 61.4 million LUNA tokens at a price that was more than 99% below the prevailing market price. Ju mp later sold A staggering profit of more than $1.28 billion resold these LUNA tokens into the market," the court filing said. On March 13, Bloomberg reported that US prosecutors were reviewing a Telegram chat group discussion involving Jump Trading, Alameda Research, and Jane Street Group regarding a potential TerraUSD stablecoin bailout.
The U.S. Department of Justice is also investigating the stablecoin crash that cost the Terra ecosystem $40 billion in May 2022. Two of the department's agencies the FBI 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 Montenegro in March on suspicion of using false documents. South Korean and U.S. authorities are seeking his extradition. He was released on 12 May on a €400,000 bail and is currently under house arrest.
