How Jump Trading allegedly manipulated UST into collapse

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Chicago-based trading firm Jump Trading has been accused of manipulating the price of algorithmic ‘stablecoin’ TerraUSD (UST) a year before it collapsed, in a class action lawsuit filed on May 9 — echoing ongoing investigations by New York federal prosecutors and suspicions from the Securities and Exchange Commission (SEC).

The suit alleges Jump Trading and its chief exec Kanav Kariya committed violations of the Commodity Exchange Act and other CFTC rules, as well as unjust enrichment common law.

Jump Trading allegedly entered into a secret agreement with Terraform Labs (TFL) co-founder Do Kwon to manipulate the price of UST between May 23 and 27, 2021. Kwon told investors the loan would help prop up liquidity amid concerns over its “lackluster” performance.

The suit further alleges that, in exchange, Jump Trading received more than 61.4 million LUNA tokens at a greater than 99% discount from its then-current market price, which Jump later resold at a $1.28 billion profit. At one point, Jump could allegedly buy LUNA tokens for $0.40 apiece when it was trading for $90 on the open market. 

Jump Trading manipulation suspected by SEC and NY prosecutors

This recent lawsuit echoes concerns held by top US regulators. In a lawsuit against Kwon, the SEC suspected that a secretive trading firm, probably Jump Trading, had previously rescued UST’s peg in May 2021, when it briefly dropped below $1 and curiously recovered its peg a few days later.

Unnamed sources at the SEC alleged that Jump Trading earned over $1.2 billion in profit from selling the discounted LUNA it privately received from Kwon and Terraform Labs at various discounts — a figure repeated in Kim’s lawsuit.

Moreover, New York prosecutors have been investigating whether Jump Trading manipulated UST. This investigation includes examining messages on Telegram sent between employees.

Jump Trading and Terraform Labs allegedly attempted to conceal their collusion, but couldn’t hide the fact that Jump Crypto co-founder Kanav Kariya once held a seat on the Luna Guard Foundation’s (LGF) governing council. LGF incomprehensibly transferred 52,000 bitcoin to Jump Trading during its supposed efforts to rescue Terra’s peg. Those bitcoin seemed to disappear into a wormhole shortly afterward.

Still no audit as to what Jump Trading did with this 52,000 bitcoin.

Read more: Jump Crypto profited from Terra Luna as investors lost billions

Latest lawsuit suggests stablecoins are commodities

Interestingly, head plaintiff Taewoo Kim is suing the multi-billion dollar parent company of Jump Crypto, Jump Trading. A victory against that fabulously profitable parent company would certainly be advantageous from a collections standpoint.

Although the lawsuit briefly mentions the SEC’s actions against UST and its backers, it proposes that stablecoins like UST might be commodities. It cites a CFTC case in which it reached a settlement with Tether and Bitfinex over USDT backing claims. Similarly, UST wasn’t fully reserved and couldn’t withstand its crisis of confidence.

Jump is a decabillion-dollar institution in Chicago. Although it has operated market-making and quantitative trading operations for decades, it only recently began proprietary crypto trading after the ICO boom of 2017.

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