Author:CoinDesk
Compiled by: Deep Chao TechFlow
Deep Chao Introduction: Wall Street's top trading firm, Jane Street, is accused of using a private Telegram chat to obtain insider information before the Terra collapse, precisely exiting their position and shorting to profit $134 million. This lawsuit not only exposes the information advantage of traditional finance giants in the crypto market but also gains stronger legal footing due to a 2023 court ruling that recognized UST and Luna as securities. It holds significant reference value for investors understanding institutional behavior and market manipulation.
Jane Street Group, one of Wall Street's largest trading firms, is accused of selling $192 million worth of the TerraUSD (UST) stablecoin just before the Terra collapse in May 2022, allegedly through a private Telegram channel with Terraform Labs insiders, according to newly unsealed court filings in Manhattan federal court.
The lawsuit, brought by the administrator liquidating Terraform's bankruptcy estate, was amended last week to reduce redactions and reveal new details about how Jane Street allegedly obtained non-public information as the Terra ecosystem crumbled.
Jane Street denied the initial allegations when they were filed in February, calling them "desperate" and "baseless," and asked the court to dismiss the case.
According to the suit, Jane Street's alleged informational edge came from a private Telegram backchannel between former Terraform intern Bryce Pratt (then working at Jane Street) and his former Terraform colleagues.
The bankruptcy administrator claims this access helped Jane Street unload its UST position near its face value before the algorithmic stablecoin's implosion and then establish short positions, profiting approximately $134 million during the collapse of Terra's $40 billion ecosystem.
In one internal exchange cited in the suit, Pratt allegedly joked that colleagues should be "slightly happier" about having an "information advantage."
With that advantage, Jane Street allegedly sold its entire UST position on May 7, 2022, unloading roughly 193 million tokens. Its single largest trade was an $85 million UST sale on the decentralized exchange Curve Finance, which occurred just nine minutes after Terraform quietly withdrew $150 million in UST liquidity from the same pool.
This trade is significant because public post-mortems of Terra's collapse have long focused on a large swap on Curve that helped push the token off its $1 peg. The lawsuit now alleges that wallet belonged to Jane Street.
When a crypto analytics firm later told a Jane Street contact that the firm had "made a killing," internal communications cited in the case show traders worrying about how their wallet was identified and then discussing how to "deactivate" them.
"This lawsuit is a transparent attempt to extract money in the well-known context that losses suffered by Terra and Luna holders were the result of a multi-billion dollar fraud perpetrated by Terraform Labs management," a Jane Street spokesperson said. "As demonstrated by the motion to dismiss filed with the court last month, we will vigorously defend ourselves against these baseless, opportunistic claims."
The suit also names Jane Street co-founder Robert Granieri and trader Michael Huang. It alleges violations of federal securities laws and the Commodity Exchange Act and seeks to recover the profits to repay creditors.
A 2023 federal court ruling in a separate U.S. Securities and Exchange Commission case that found UST and Luna qualified as securities gives the new lawsuit stronger legal grounding.
The lawsuit states that on May 18, 2022, five days after UST bottomed, Jane Street offered a job to a Terraform research lead. He joined the firm two weeks later.
