Jump Trading Sued Over Do Kwon’s Alleged Terraform Crypto Fraud

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The company first became involved with Terraform’s South Korean co-founder and CEO Do Kwon in 2019 and is a defendant in the lawsuit, filed in Chicago federal court and seeking class-action status at the name of the investors in the Terraform tokens, for helping to organize a rescue. in May 2021 of Terraform’s TerraUSD (UST) stablecoin, and then helping to hide this fact from future investors. Read the lawsuit below.

Jump effectively backed the UST when the heavy selling reduced its value to well below the $1 level it was supposed to peg at, according to the lawsuit. In return, Terraform offered Jump the option to purchase $2.5 million worth of its LUNA tokens at 40 cents each.

Jump turned around and sold those tokens for $1.28 billion, according to the lawsuit filed by Taewoo Kim, a New Jersey resident who purchased UST tokens between May 2021 and May 2022.

Subsequently, Kwon and Jump Crypto Chairman Kanav Kariya, who is also a defendant in the lawsuit, repeatedly reassured investors that it was Terraform’s logarithmic setup that brought UST back to value. and made no mention of Jump Trading’s extraordinary involvement in the rescue, according to the lawsuit.

These assurances convinced crypto investors to buy billions more of LUNA and UST tokens until another UST collapse in May 2022, just a year later, led to the collapse of Terraform, according to the trial.

Much of the information in the lawsuit originally comes from the Securities & Exchange Commission’s February lawsuit against Kwon and Terraform, filed in federal court in New York, alleging commodity fraud. That complaint did not name Jump Trading and instead used the generic term, “a proprietary US trading company.” Jump is identified as that company in the eventual class action lawsuit, as well as in several news reports.

A spokeswoman declined to comment on the new lawsuit or whether Jump is the company listed in the SEC action.

The SEC described the trading company’s help like this in its complaint: “In May 2021, the UST fell below $1.00. In response, the defendants secretly discussed with a third party that the third party would buy massive amounts of UST to re-establish the $1.00 peg.”

“As UST returned to $1.00,” the SEC continued, “Kwon and Terraform have publicly and repeatedly touted the restoration of the UST$1.00 peg as a triumph of decentralization and of the UST/LUNA automatic self-healing algorithm on ‘human agent decision-making during market volatility’, misleadingly omitting the actual reason why the $1.00 peg was restored: the intervention of a third party to support the price of the UST. In late May, Terraform publicly boasted to the investing public that it had allegedly proven the reliability of the UST$1.00 peg – the “keystone of the entire (Terraform) ecosystem” – in a “black swan” event which was “as intense a stress test as possible under real-world conditions.” “

When the price of UST plunged again a year later, there was no rescue. More than $40 billion in assets were wiped out, the SEC said, adding: “A number of retail investors in the United States lost their life savings. And some U.S. institutional investors lost billions of dollars from the market value of their LUNA and UST holdings.”

On April 21, Terraform filed a motion to dismiss the SEC’s lawsuit, arguing that the agency lacks jurisdiction and has failed to present “sufficient facts” to demonstrate that Terraform has misled investors about the UST’s first collapse in May 2021.

Kwon was charged with federal fraud and conspiracy in New York in March, shortly after he was arrested at an airport in Montenegro attempting to fly to Dubai while being treated as an international fugitive. He reportedly held several passports. He was tried today in this Balkan country for false documents, according to the Washington Post.

The United States and South Korea have requested his extradition.

Kariya, the president of Jump Crypto, appeared with Kwon on Jump Crypto’s inaugural episode of his podcast, “The Ship Show,” on March 1, 2022, according to the class action lawsuit.

“Kwon… misrepresented during the episode that the May 2021 UST “slip” and “deviation (ion) from the ankle” was “naturally” and “automatically self-repaired” by the TFL’s algorithm,” the lawsuit said. . “Kwon falsely and deceptively omitted the truth about Jump’s active intervention to support the price of UST and manipulate the price of aUST. Kariya participated in the podcast but did not correct any of the false and misleading statements of Kwon.”

The term “aUST” refers to a Terraform product called “Anchor Protocol”, which served as a quasi-bank deposit. Investors could store their UST tokens there and earn interest while Terraform lends those tokens to borrowers for periods of time. Launched in March 2021, aUST “was publicly advertised…not as a pooled investment product but rather as ‘a principal-protected savings product with instant withdrawals and a stable interest rate’ “, according to the lawsuit.

During the podcast, Kariya celebrated Jump’s relationship with Terraform, per the suit. He quoted Kariya as saying, “Do started off by saying the first time we spoke was in 2019, and I hadn’t really quite internalized that until now. And so, yeah, it’s been really , really great working with you and the rest of the Terra Community for over two years now. It’s pretty amazing to think about how far you’ve come, so yeah, just wanted to say it’s been great.”

Two months later, when the value of UST fell again, Terraform contacted Jump again, along with Alameda Research, the former trading firm of now-disgraced and indicted crypto chief Sam Bankman-Fried. , and New York-based trading company Jane Street, according to Bloomberg. No bailout was coming this time.

Jump’s role in Terraform was kept secret until the SEC filed its lawsuit on February 16, according to the lawsuit. Reports in publications including CoinDesk, Fortune and The Crypto Times quickly identified Jump as the SEC’s unnamed prop trading firm, according to the suit.

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