A lawsuit filed in Illinois district court details Terra Labs’ Jump Trading’s alleged involvement in manipulating the price of the algorithmic stablecoin TerraUSD (UST). According to court documents from May 9, the company bought millions of UST tokens in 2021 hoping to manipulate its value to reach $1.
Plaintiff Taewoo Kim accused Jump and its CEO Kanav Kariya of violating the Commodity Exchange Act and Commodity Futures Trading Commission (CFTC) regulations, as well as 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 several agreements with Terraform and its affiliates “to borrow tens of millions of LUNA tokens” from Terra and “provide market making services for LUNA, UST and aUST transaction.”
In turn, the agreements will give Jump Trading “the opportunity to buy LUNA tokens at a deep discount, which can then be resold into the market to increase Jump’s own profits.”
According to the filing, in May 2021 — exactly one year before Terra’s ecosystem collapsed — the UST stablecoin algorithm failed to maintain its $1 peg, leading Terraform and its CEO Do Kwon to coordinate trades to increase the price of the token:
“Instead of publicly acknowledging the inability of TFL’s algorithm to maintain the advertised UST peg price (which is the basis of the perceived market value of UST and aUST), TFL and Kwon secretly negotiated with Defendant Jump to manipulate market prices for the UST and aUST by making secret, coordinated trades to support the UST at its $1 peg.”
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 increase by $1, further increasing the price. in AUST.
In order to incentivize and reward Jump for its alleged manipulation of the markets, Terra and Kwon “agreed to modify the parties’ previous agreements and in exchange to unconditionally disclose to Jump more than 61.4 million LUNA tokens at a greater than 99% discount from their current market price. Leap later resold LUNA tokens on the market at a staggering profit of over $1.28 billion,” said court filing.
Cointelegraph reached out to Jump Trading about the lawsuit, but did not receive an immediate response.
Bloomberg reported on March 13 that US prosecutors are investigating a Telegram chat group discussion involving Jump Trading, Alameda Research and Jane Street Group regarding a potential TerraUSD stablecoin bailout.
The US Department of Justice is also investigating the collapse of the stablecoin, which contributed to a $40 billion wipeout of the Terra ecosystem in May. Two agencies within the department – the Federal Bureau of Investigation and the Attorney’s Office for the Southern District of New York – have been questioning former Terraform Labs employees in recent weeks.
Kwon was arrested in March in Montenegro for allegedly using false documents. Authorities in South Korea and the United States are seeking his extradition. He is currently under house arrest after being bailed for 400,000 euros on May 12.
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