Jane Street argues it cannot be blamed for a $40 billion fraud that has already been prosecuted, calling the lawsuit an attempt to make it foot the bill for Terraform's own collapse.
Trading giant Jane Street filed a motion on April 24 to dismiss a lawsuit from the Terraform Labs bankruptcy estate, which alleges the firm used insider information to accelerate the $40 billion collapse of the UST stablecoin in May 2022.
"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 firm wrote in its filing to the Southern District of New York.
The lawsuit, filed in February 2026, claims a former Terraform intern working at Jane Street provided non-public information that allowed the trading firm to sell 85 million UST just before its collapse. Jane Street counters that this key trade occurred 10 minutes after the stablecoin's peg instability was already public. The firm also notes that Terraform founder Do Kwon is serving a 15-year prison sentence after being found liable for fraud, stating he was "alone responsible for everyone's pain."
The court's decision on the motion to dismiss, assigned to Judge Dale E. Ho, could set a major precedent for how liability is assigned in crypto market failures beyond a project's founders. A dismissal would reinforce the narrative of Terraform's sole culpability, while a trial could expose the role of major market makers in ecosystem stability and expose firms like Jump Trading and Three Arrows Capital to similar legal challenges.
Terraform’s lawsuit centers on the allegation of insider trading, but Jane Street’s defense claims the timeline presented by the plaintiff is “self-defeating.” The motion to dismiss argues that its largest UST sales on May 7, 2022, were a reaction to publicly visible market data showing the stablecoin was losing its $1 peg.
The plaintiff, bankruptcy administrator Todd Snyder, alleges that Jane Street’s bearish bets on UST and LUNA between May 8 and May 13 were also based on insider knowledge of a potential "rescue package." Jane Street denies this, stating it began building its short positions before any such information was allegedly received.
A key legal argument from Jane Street is the “Wagoner rule,” a doctrine preventing a company’s estate from suing third parties for damages caused by its own fraudulent actions. The filing emphasizes that Terraform Labs’ fraud has been “prosecuted, adjudicated, and punished,” citing the criminal and civil cases against Do Kwon.
By invoking this rule, Jane Street seeks to draw a clear line, suggesting that the legal consequences for the $40 billion collapse should end with Kwon and Terraform Labs. The firm also challenges the court's jurisdiction, arguing the lawsuit fails to prove the trades in question occurred within the United States. The case is filed as 1:26-cv-01536-DEH in the Southern District of New York.
This article is for informational purposes only and does not constitute investment advice.
