Terraform Labs has accused one of Wall Street’s largest trading firms, Jane Street, of allegedly using a private Telegram group chat with insiders to dump its TerraUSD (UST) stablecoin holdings just hours before its collapse.
Jane Street Used Terraform Group Chat For ‘Defi Info’
In an amended complaint filed earlier this week, Terraform Labs administrator Todd Snyder accused Jane Street, its co-founder Robert Granieri, and traders Bryce Pratt and Michael Huang of using a Telegram group and other backchannel sources of non-public information to “front-run trading that hastened the collapse” of the company.
In February, Snyder sued Jane Street, Granieri, Pratt, and Huang in Manhattan federal court, accusing them of “misappropriating confidential information and manipulating market prices.”
The court document claimed that Jane Street traders created a secret group chat to obtain insider information. The private group, called “Bryce’s Secret,” was seemingly named after Pratt, a former Terraform intern who had started working at Jane Street.
According to the document, the channel was created on February 22, 2022, and included Pratt and two former colleagues, including Terraform’s Head of Business Development.
Over the months ahead of the UST’s collapse, Pratt allegedly reached out to his Terraform contacts for “defi info,” Terraform’s assets, strategies, and need for liquidity, obtaining a massive advantage in the market.
“Using that insider information, Jane Street sold off its UST at the opportune moment—on May 7, 2022—to maximize its own profits and avoid substantial losses,” the Terraform’s estate claimed.
“Within hours of Jane Street selling its UST holdings, UST was depegged from $1, and the entire Terraform ecosystem, including the UST and Luna cryptocurrencies, was in a death spiral. Jane Street did not stop there: using the confidential information it learned, it then took short positions in UST and Luna to profit from the crash it helped catalyze,” it continued.
As a result, Jane Street exited its roughly $193 million UST position near par and allegedly made an additional $134 million from UST and LUNA shorts.
Insider Trading Fueled UST’s ‘Death Spiral’
The filing affirmed that Jane Street “pulled the rug out from Terraform and its investors when it liquidated its entire holding in a single trading day,” suggesting that if the Wall Street giant had not flooded the market and triggered the initial depeg, “the irreversible UST death spiral that led Terraform to suffer significant losses may not have occurred.”
Therefore, the estate considers that Jane Street’s market manipulation before and during the May 2022 depeg event damaged the ecosystem, and requested that the Court find that the defendants violated the Commodities Exchange Act and “award the amount that Jane Street profited and the losses they avoided as a result of their manipulation of the market and trades supported by material non-public information.”
It’s worth noting that Jane Street filed a motion to dismiss the lawsuit in April, alleging that the company’s estate attempted to “extract cash from Jane Street to foot the bill for a fraud that Terraform itself perpetrated on the market.”
Jane Street argued that Terraform’s management was responsible for the multi-billion-dollar collapse and affirmed that its controversial transactions came after the damaging information about UST and LUNA had already been made public.
