Jane Street has filed a formal motion in a United States federal court to dismiss a lawsuit brought by the bankruptcy estate of Terraform Labs. The lawsuit accuses the market maker of insider trading during the catastrophic collapse of the Terra-LUNA ecosystem in 2022. According to court documents reviewed by Cointelegraph, Jane Street seeks a dismissal with prejudice, meaning Terraform Labs cannot refile the same claims if the court grants the motion.
In its legal filing, Jane Street argues that its trading activities in Terra-related tokens were based on publicly available market signals, explicitly denying the use of any non-public information. This defense directly counters Terraform Labs' central allegation that Jane Street engaged in insider trading before the ecosystem's implosion. The motion emphasizes that Jane Street's trading decisions relied on standard market analysis, not confidential data.
The legal battle stems from the dramatic collapse of TerraUSD (UST) and its sister token LUNA in May 2022, which erased approximately $40 billion in market value within days. Terraform Labs subsequently filed for Chapter 11 bankruptcy protection in January 2023. The lawsuit against Jane Street is one of several legal actions Terraform Labs has pursued to recover losses. The case was initiated in February by bankruptcy administrator Todd Snyder, who accused Jane Street and its employees of using confidential information to trade ahead of the collapse.
Central to the complaint were events on May 7, 2022, when Terraform withdrew 150 million TerraUSD from a key liquidity pool. According to the lawsuit, a wallet linked to Jane Street withdrew 85 million tokens from the same pool minutes later, a move that allegedly triggered a cascade of selling as the stablecoin lost its dollar peg. Jane Street, however, argues that Terraform has failed to show any trades relied on undisclosed information, noting that the transition to a new liquidity pool was publicly announced weeks earlier.
Jane Street's motion also invokes the 'Wagoner rule,' which limits a bankruptcy estate's ability to sue third parties over losses caused by its own fraud. The defendants contend that Terraform has not established that the disputed trades took place in the United States, raising questions over jurisdiction. The filing also points out that Do Kwon, Terraform's founder, pleaded guilty to conspiracy and wire fraud charges and is serving a 15-year sentence, stating that 'Terraform's fraud scheme — in which Jane Street had no involvement — has already been prosecuted, adjudicated, and punished.'
The outcome of this motion could have far-reaching consequences for the cryptocurrency industry. If the court dismisses the case with prejudice, it may discourage similar lawsuits against market makers. Conversely, a denial could open the door for more litigation against trading firms. Legal experts note that insider trading cases in cryptocurrency markets face unique challenges, as digital assets often lack clear regulatory classifications, making it difficult to establish what constitutes inside information.
