Jane Street seeks dismissal of Terraform insider-trading suit

Jane Street asked the U.S. District Court for the Southern District of New York to dismiss with prejudice an insider-trading and market-manipulation lawsuit filed by the bankruptcy estate of Terraform Labs. The quant firm and several individual defendants said the suit is meritless and attempts to shift blame for the 2022 collapse of the UST/LUNA ecosystem.

The dismissal motion says the estate is seeking to extract money from Jane Street. The filing states, “This case is an attempt by the estate of Terraform Labs to extract cash from Jane Street to foot the bill for a fraud that Terraform itself perpetrated on the market.”

The filing notes that Terraform founder Do Kwon pleaded guilty in December to conspiracy and wire fraud and is serving a 15-year prison sentence. A unanimous jury previously found Terraform and Kwon civilly liable for securities fraud, and the filing cites Kwon's admission that he was “alone responsible for everyone's pain.” The defendants argued the estate cannot relitigate losses caused by Terraform's own misconduct.

On the insider-trading and manipulation allegations, the filing says Jane Street's largest trades occurred after material information about the health of UST and LUNA became public. The filing points out that Terraform's announced transition to a new liquidity pool was disclosed weeks earlier and produced no market reaction. The complaint does not identify material non-public information or specific back-channel communications that would have given Jane Street an unfair edge.

Jane Street acknowledged it began building a sizable short position on May 8 and sold assets on May 7, but the filing says those actions do not prove illicit insider trading.

The defendants raised legal defenses, citing the Wagoner rule, which bars a bankruptcy estate from suing third parties to recover losses that stem from the debtor's own fraud. The filing also argues the claims are impermissibly extraterritorial because the estate has not shown the trades at issue occurred in the United States.

Jane Street asked the court to dismiss the entire lawsuit with prejudice. The filing adds that “Terraform's fraud scheme — in which Jane Street had no involvement — has already been prosecuted, adjudicated, and punished.”

The dispute dates to May 2022, when the algorithmic stablecoin UST and its sister token LUNA collapsed, wiping out billions in market value. Terraform filed for bankruptcy and the estate has since pursued litigation against multiple counterparties alleging misconduct that contributed to the crash.