A recent lawsuit filed in a district court in Illinois brought the spotlight on Jump Trading‘s alleged involvement with Terra Labs in manipulating the price of algorithmic stablecoin TerraUSD (UST). Based on court documents, the firm is accused of purchasing millions of UST tokens last year with the intention of manipulating its value to reach $1. The plaintiff, Taewoo Kim, accuses Jump Trading and its CEO, Kanav Kariya, of violating the Commodity Exchange Act, Commodity Futures Trading Commission (CFTC) regulations, and common law unjust enrichment.
Jump Trading has been previously considered as an early partner and primary financial backer of Terraform Labs. Between 2019 and 2020, Jump entered into several agreements with Terraform to borrow tens of millions of LUNA tokens and provide market-making services for transactions in LUNA, UST, and aUST. In return, the agreements would grant Jump Trading the opportunity to purchase LUNA tokens at a steep discount and resell them into the market for further profits.
However, it is worth noting that in May 2021, a year before Terra’s ecosystem collapsed, the UST stablecoin algorithm failed to maintain its $1 peg. Instead of addressing the issue publicly, Terraform and its CEO, Do Kwon, were found allegedly scheming with Jump Trading to manipulate the market prices for UST and aUST through secret, coordinated trades. This move led to an artificially inflated UST price of $1, subsequently causing aUST’s price to rise as well.
Terra and Kwon reportedly compensated Jump Trading for its alleged market manipulation by unconditionally conveying over 61.4 million LUNA tokens at a more than 99% discount from their then-current market price. Jump Trading was then able to resell those LUNA tokens for a staggering profit of over $1.28 billion.
This situation has drawn the attention of US prosecutors who are now examining chat group discussions on Telegram involving Jump Trading, Alameda Research, and Jane Street Group concerning a potential TerraUSD stablecoin bailout. Additionally, the US Department of Justice is investigating the stablecoin collapse that caused a $40 billion wipeout in the Terra ecosystem last May. This probe involves the Federal Bureau of Investigation and the Attorney’s Office for the Southern District of New York, who have questioned former staff at Terraform Labs.
In the latest development, Kwon was arrested in Montenegro in March for allegedly using false documents. South Korean and US authorities are currently seeking his extradition, and Kwon is under house arrest after being released on bail for 400,000 euros.
This ongoing lawsuit serves as a valuable reminder for regulators and market participants alike to keep a close eye on the ever-evolving cryptocurrency markets and the potential pitfalls and hazards that may come with it.
Source: Cointelegraph
