Key Takeaways
- The lawsuit claims that Jump Trading was an early partner and primary financial backer of Terraform Labs, entering into various agreements with the Do-Kwon-owned firm
- Allegedly, Jump borrowed tens of millions of LUNA tokens from Terra and provided market-making services for transactions in LUNA, UST, and UST.
Jump Trading is facing a lawsuit filed in a district court in Illinois over its alleged involvement with Terraform Labs in manipulating the price of algorithmic stablecoin TerraUSD (UST).
According to court documents, plaintiff Taewoo Kim is accusing Jump and its CEO, Kanav Kariya, of violating both the Commodity Exchange Act and the Commodity Futures Trading Commission regulations, as well as common law unjust enrichment.
The lawsuit claims that Jump Trading was an early partner and primary financial backer of Terraform Labs, entering into several agreements with the firm between November 2019 and September 2020.
Under these agreements, Jump borrowed tens of millions of LUNA tokens from Terra and provided market-making services for transactions in LUNA, UST, and UST. In exchange, Jump was given the opportunity to purchase LUNA tokens at a steep discount, which it could then resell into the market to further its own profit.
The court filing alleges that in May 2021, the UST stablecoin algorithm failed to keep its $1 peg, leading Terraform and its CEO Do Kwon to coordinate trades to prop the token price. Instead of acknowledging the inability of the algorithm to maintain UST’s advertised peg price, TFL and Kwon secretly schemed with Jump to manipulate the market prices for UST and aUST by making secret, coordinated trades to prop up UST to its $1 peg.
According to the lawsuit, Jump purchased more than 62 million UST tokens between approximately May 23 and May 27, 2021, causing UST’s price to artificially rise to $1, further increasing aUST’s price as well.
In return for allegedly manipulating the markets, Terra and Kwon “agreed to modify the parties’ prior agreements and instead unconditionally convey to Jump more than 61.4 million LUNA tokens at a greater than 99% discount from their then-current market price. Jump later resold those LUNA tokens into the market at a staggering profit of over $1.28 billion.”
The lawsuit also claims that Jump Trading’s alleged conduct violated the Commodity Exchange Act and the Commodity Futures Trading Commission regulations, as well as common law unjust enrichment. The case highlights the scrutiny that cryptocurrency trading firms have faced from regulators, who are increasingly focused on ensuring that such firms comply with the law.
The latest development also comes amid a report by Bloomberg which states that the U.S. prosecutors are examining a chat group discussion on Telegram involving Jump Trading, Alameda Research, and Jane Street Group regarding a potential TerraUSD stablecoin bailout.
The lawsuit against Jump Trading is the latest in a series of legal actions taken against cryptocurrency trading firms as regulators seek to rein in the largely unregulated industry.
