Jane Street dismisses insider trading allegations over role in $40bn Terra collapse as 'self-defeating'

Jane Street, the $45 billion high-frequency trading firm, has filed to dismiss a lawsuit alleging it enjoyed an insider advantage amid the Terra collapse almost four years ago.

In February, Todd Snyder, the administrator overseeing Terraform Labs’ winding down, filed suit against the firm, its co-founder Robert Granieri, and two employees, Michael Huang and Bryce Pratt.

Snyder claims that Jane Street was able to profit from “trades that would have been impossible without inside information to which it had unique access.”

Jane Street, however, argues that it could not have traded on non-public information because it placed trades after that information became publicly available.

“The Complaint is self-defeating,” Jane Street said in the Thursday motion. “Plaintiff’s own pleading acknowledges that Jane Street’s single largest UST sale — 85 million UST — occurred ten minutes after the supposed material non-public information was visible to the market.”

Since Terraform Labs’ UST stablecoin lost its peg to the dollar and collapsed in May 2022, those involved have struggled to determine exactly what happened and which parties, beyond Terraform Labs, were to blame.

The incident cost investors some $40 billion and set off a chain reaction that culminated in the collapse of the crypto exchange FTX, along with other crypto firms exposed to UST and the Terra blockchain’s native cryptocurrency, LUNA.

Do Kwon, Terraform Labs’ cocksure founder, now serves a 15-year prison sentence for fraud.

Timing mismatch

In the February filing, Snyder accused Jane Street employee Bryce Pratt, who worked as an intern for Terraform Labs until September 2021, of using a backchannel to gain non-public information from his former employer.

“Using that insider information, Jane Street sold off its [REDACTED] UST at the opportune moment — on May 7, 2022 — to maximise its own profits and avoid substantial losses,” the suit reads.

Jane Street sees things differently. It argues that the 85 million UST it sold on May 7 was made in response to the stablecoin’s deteriorating peg and was not influenced by any insider information.

Then, between May 8 and 13, Jane Street opened short positions — bearish bets — on UST and LUNA.

While Snyder again alleges that the decision was predicated on insider information, Jane Street says it wasn’t. The firm said it began building the short position on May 8, before it allegedly received any insider information about a possible “rescue package.”

The so-called rescue package was a proposed emergency fundraising effort to support the collapsing UST stablecoin.

Jane Street isn’t the only trading firm Snyder has accused of foul play.

In December, he also filed a lawsuit against the Chicago-based firm Jump Trading, alleging the company also played an outsized role in the collapse of Terra.

He accused the firm, several of its subsidiaries, and two of its executives of market manipulation, defrauding investors, self-dealing and more.

In March, Jump responded to Snyder’s suit, calling it a “transparent attempt” to dodge a $4.4 billion fine levied by the Securities and Exchange Commission in 2024.

Jane Street’s motion to dismiss was filed in the Southern District of New York, where judges typically have 60 days from submission to make a decision.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.