The court-appointed administrator for the bankrupt Terraform Labs has filed a lawsuit against quantitative trading firm Jane Street, alleging it engaged in insider trading that exacerbated the catastrophic collapse of the Terra ecosystem in May 2022. The complaint, filed in Manhattan federal court by administrator Todd Snyder, accuses Jane Street, its co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang of "misappropriating confidential information and manipulating market prices."
The heavily redacted lawsuit claims Jane Street used connections with Terraform insiders to obtain material non-public information about the company's internal liquidity decisions. Specifically, the complaint alleges that on May 7, 2022, Terraform withdrew 150 million TerraUSD (UST) tokens from a liquidity pool without a public announcement. Within 10 minutes, Jane Street allegedly sold 85 million UST into the same pool, an action described as its largest-ever single swap, which allegedly triggered a fire sale and accelerated the ecosystem's collapse.
The suit further claims Jane Street employee Bryce Pratt, a former Terraform intern, reestablished contact with his old teammates and set up a communication channel with Terraform's business development lead, using it as a "back-channel source" for sensitive information. The firm is accused of selling "hundreds of millions of dollars in potential exposure at precisely the right time, mere hours before the Terraform ecosystem collapsed."
Jane Street has vehemently denied the allegations, calling the suit "baseless, opportunistic claims" and a "desperate" attempt to extract money. The firm contends the losses were solely the result of the multi-billion dollar fraud perpetrated by Terraform Labs management, including founder Do Kwon, who is now serving a 15-year prison sentence after pleading guilty to fraud charges.
Legal experts suggest the case could set a significant precedent for liability in decentralized finance (DeFi). Attorney Andrew Rossow told Decrypt the case matters because "the court isn't just judging a trade anymore; it's setting a precedent that 'privileged access' in DeFi is a legal liability." The lawsuit could test the application of a stricter misappropriation theory in crypto markets, potentially broadening the definition of an "insider" to include anyone with private access to a protocol's crisis communications.
The Terra ecosystem implosion, which erased roughly $40 billion in value, intensified stress across the broader crypto market and contributed to a chain of failures, including the collapse of FTX later in 2022. Terraform Labs filed for Chapter 11 bankruptcy in January 2024.
