The bankruptcy trustee for Terraform Labs has filed a USD 4 billion lawsuit against trading firm Jump Trading. The allegations include market manipulation, proprietary trading, and profiteering from the algorithmic stablecoin TerraUSD, whose collapse in May 2022 wiped out roughly USD 40 billion.
The complaint names not only Jump Trading LLC, but also co-founder William DiSomma and former Jump Crypto President Kanav Kariya. According to the filing, Jump Trading allegedly concealed the weaknesses of the stability mechanism through secret arrangements with Do Kwon. The firm is said to have earned more than USD 1.28 billion in profit from heavily discounted LUNA tokens. The allegations come just days after Do Kwon’s 15-year prison sentence on December 11.
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Secret agreements and systematic market manipulation
Jump Trading entered into secret agreements with Do Kwon as early as 2019. These arrangements enabled the acquisition of substantial amounts of LUNA tokens at steep discounts. At the same time, the firm publicly positioned itself as a neutral market maker. Bankruptcy trustee Todd Snyder accuses Jump Trading of misleading the public through this dual role.
In May 2021, Jump Trading intervened during a UST depeg crisis. The firm purchased roughly USD 20 million worth of UST tokens, restoring the peg to the US dollar. The intervention, however, remained confidential. Instead, the algorithmic mechanism was publicly credited for the stabilization. This deception strengthened investor confidence and helped Terraform Labs avoid regulatory scrutiny.
As a reward, Do Kwon modified existing agreements with Jump Trading. In July 2021, the firm received over 61.4 million LUNA tokens at USD 0.40 per token. The market price at the time was around USD 90 - a 99% discount. Jump Trading later sold these tokens, allegedly realizing USD 1.28 billion in profit.
Bitcoin transfer without a formal agreement during the final collapse
During the May 2022 collapse, the allegations intensified further. The Luna Foundation Guard (LFG) held more than 80,000 bitcoin as a reserve. According to the complaint, it transferred nearly 50'000 bitcoin to Jump Trading - without a formal agreement. A later independent review confirmed that more than 52'000 bitcoin flowed from the LFG to Jump Trading.
"Jump aggressively bought UST whenever the algorithmic stablecoin fell below its 1 Dollar peg. These purchases allegedly drove demand artificially higher and misled market participants into the mistaken belief that the peg mechanism was functioning as intended." - From the complaint
The collapse began on May 7, 2022. Two large addresses withdrew 375 million UST from the Anchor Protocol. Within days, UST completely lost its dollar peg, falling to USD 0.02. LUNA, which had traded above USD 116 in April, lost virtually all of its value. In total, the collapse erased more than USD 40 billion. It also triggered a chain reaction: Celsius Network froze withdrawals, hedge fund Three Arrows Capital collapsed, and the broader crypto market slid into a bear market.
SEC settlement as a prelude to the billion-dollar lawsuit
The new lawsuit follows an SEC settlement dated December 20, 2024. Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings, paid USD 123 million. Regulators accused the company of misleading investors about the stability of TerraUSD.
Specifically, the SEC alleged that Tai Mo Shan secretly spent USD 20 million buying UST in May 2021 to restore the dollar peg - without disclosing it. In addition, Tai Mo Shan allegedly acted as an unregistered underwriter for LUNA tokens. The settlement included USD 73.5 million in disgorgement, USD 12.9 million in interest, and a USD 36.7 million penalty. Tai Mo Shan did not admit wrongdoing.
DiSomma and Kariya invoked their right against self-incrimination in earlier investigations. Kariya left Jump Trading in 2024 as the CFTC opened investigations. Jump Trading has not publicly commented on the lawsuit to date. A spokesperson described it only as a "desperate attempt" to shift responsibility away from Terraform Labs.
Legal consequences and industry impact
The legal consequences underscore the scale of the damage. Judge Paul Engelmayer sentenced Do Kwon to 15 years in prison on December 11, 2025. He called the crime "fraud of epic proportions." He rejected the 12-year sentence sought by prosecutors as too lenient, and described the five years requested by Kwon’s lawyers as "utterly unthinkable." He also ordered the forfeiture of more than USD 19 million. In South Korea, Kwon faces up to 40 years in prison.
Terraform Labs reached a USD 4.5 billion settlement with the SEC in 2024. The new lawsuit against Jump Trading could nevertheless have far-reaching consequences. If successful, it would draw clearer lines between market making and market manipulation, potentially reshaping the practices of major trading firms.
The complaint argues that Jump Trading’s intervention was not market stabilization. Instead, it amounted to a value-extraction scheme. At the same time, the firm allegedly concealed the system’s structural weaknesses. The USD 4 billion sought therefore reflects not only direct losses, but also systemic risks stemming from covert market interventions.
