A lawsuit filed in an Illinois district court details Jump Trading’s alleged involvement with Terra Labs in manipulating the price of the algorithmic stablecoin TerraUSD (UST). According to court documents dated May 9, the firm bought millions of UST tokens in 2021 hoping to manipulate their value to reach $1.
Plaintiff Taewoo Kim accuses Jump and its CEO Kanav Kariya of violating both the Commodity Exchange Act and Commodity Futures Trading Commission (CFTC) regulations, as well as common law unfair 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 various agreements with Terraform and its affiliates “to borrow tens of millions of LUNA tokens.” de Terra and “provide market making services for transactions in LUNA, UST and aUST.”
In exchange, the deals would grant Jump Trading “the opportunity to purchase LUNA tokens at a deep discount, which could then be resold on the market to increase Jump’s own profit.”
According to the presentation, in May 2021—exactly one year before the Terra ecosystem collapsed—the UST stablecoin algorithm was unable to maintain its $1 peg, prompting Terraform and its CEO Do Kwon to coordinate operations to prop up the token price:
“Instead of publicly acknowledging TFL’s algorithm’s inability to maintain UST’s advertised fixed price (which was critical to the perceived market value of UST and aUST), TFL and Kwon secretly conspired with defendant Jump to manipulate prices.” of UST and aUST by conducting secret and coordinated operations to prop up UST at its fixed price of $1″.
The alleged scheme involved Jump purchasing more than 62 million UST tokens between approximately May 23 and May 27, 2021, causing the price of UST to artificially rise to one dollar, further increasing the price of aUST as well.
To incentivize and reward Jump for its alleged manipulation of the markets, Terra and Kwon “agreed to amend the parties’ prior agreements and instead unconditionally convey to Jump more than 61.4 million LUNA tokens at a discount of greater than 99%.” of its then current market price. Jump subsequently resold those LUNA tokens on the market at a staggering profit of more than $1.28 billion,” the lawsuit states.
Cointelegraph reached out to Jump Trading regarding the lawsuit, but did not receive an immediate response.
Bloomberg reported on March 13 that US prosecutors are examining a Telegram chat group discussion involving Jump Trading, Alameda Research, and the Jane Street Group in connection with a potential TerraUSD stablecoin rescue.
The US Department of Justice is also investigating the stablecoin collapse, which contributed to the disappearance of $40 billion from the Terra ecosystem last May. Two department agencies – the Federal Bureau of Investigation and the US Attorney’s Office for the Southern District of New York – have questioned former Terraform Labs employees in recent weeks.
Kwon was arrested in March in Montenegro for allegedly using false documents. The South Korean and US authorities request his extradition. He is currently under house arrest after being released on 400,000 euro bail on May 12.
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