The estate of Terraform Labs has intensified its legal battle against Wall Street trading firm Jane Street, claiming the prestigious firm exploited insider information to divest $192 million of TerraUSD (UST) just before the stablecoin’s catastrophic collapse in May 2022. Newly unsealed court documents reveal internal communications that suggest Jane Street may have had an unfair advantage in the market, raising serious questions about ethics and legality within the crypto trading sphere.
According to the amended complaint filed in Manhattan federal court, Jane Street’s traders allegedly joked about having an “informational advantage” just prior to their massive sell-off. This advantage reportedly stemmed from a secret Telegram group established by a former Terraform intern, Bryce Pratt, who allegedly shared sensitive details about Terraform’s operations with Jane Street.
The Telegram Channel and Internal Communications
Pratt, who joined Jane Street in September 2021, is said to have created a private Telegram channel named “Bryce’s Secret” in February 2022. This group reportedly included key figures from Terraform, such as its head of business development and a senior software engineer, allowing Jane Street access to crucial information regarding Terraform’s liquidity and asset strategies.
The court filings highlight a particular exchange among Jane Street traders, where they expressed being “slightly pleased” about their access to material non-public information. This suggests an awareness that they were not simply relying on market analysis but were instead acting on privileged insights.
The Critical Nine Minutes
On May 7, 2022, at precisely 5:44 PM Eastern Time, Terraform Labs quietly withdrew $150 million worth of UST from a key liquidity pool, the Curve 3pool. Within a mere nine minutes, a wallet identified in the lawsuit as belonging to Jane Street removed 85 million UST from the same pool. This transaction is described as the largest individual trade that contributed to UST’s decline from its dollar peg.
In total, Jane Street liquidated approximately 192 million UST tokens at near-par value. Following this, the firm allegedly initiated short positions as the algorithmic stablecoin began its downward spiral, reportedly netting around $134 million in profits as the Terra ecosystem, valued at $40 billion, unraveled.
Legal Repercussions and Wallet Decommissioning
Following their lucrative trades, Jane Street traders reportedly grew concerned about their wallets being identified on-chain. Internal communications suggested that they discussed “decommissioning” their wallets—essentially abandoning the linked addresses to maintain anonymity. Such actions indicate a possible consciousness of guilt, as traders with no wrongdoing typically would not feel the need to hide their activities.
Hiring Terraform Insiders
Adding another layer to the allegations, five days after UST hit rock bottom, Jane Street is said to have extended a job offer to Terraform’s head of research, who commenced employment two weeks later. This move is perceived as part of a broader strategy to cultivate insider access and knowledge, particularly in light of Pratt’s involvement.
Jane Street’s Denial of Wrongdoing
In response to these serious allegations, Jane Street has firmly denied any wrongdoing, labeling the lawsuit as a “transparent attempt to extract money.” The firm insists that losses were a result of fraud perpetrated by Terraform’s founder, Do Kwon, and not their trading activities. Furthermore, Jane Street’s motion to dismiss the lawsuit argues that protections under the Wagoner Rule shield them from being sued by the bankruptcy estate.
The amended complaint now invokes both federal securities laws and the Commodity Exchange Act, potentially widening Jane Street’s liability. As the legal proceedings unfold, the industry watches closely, as this case could set significant precedents regarding insider trading in the crypto space.
