Jane Street sued: suspected of using internal Telegram messages to front-run and short sell before the Terra collapse, profiting $134 million

Author: CoinDesk

Translation: Deep Tide TechFlow

Deep Tide Guide: Wall Street's top trading firm Jane Street is accused of obtaining insider information through private Telegram chats before the Terra collapse, accurately timing the top and profiting $134 million from short selling. This lawsuit not only exposes the information advantage of traditional financial giants in the crypto market but also, with the 2023 court ruling that UST and Luna are securities, provides a stronger legal basis, offering important reference for investors to understand institutional behavior and market manipulation.

One of Wall Street's largest trading firms, Jane Street Group, is accused of selling $192 million worth of TerraUSD (UST) stablecoins through a private Telegram channel with Terraform Labs insiders before the Terra crash in May 2022, according to court documents unsealed by the Manhattan Federal Court.

The lawsuit was filed by the administrator liquidating Terraform's bankruptcy assets, and after revisions last week, it disclosed new details on how Jane Street obtained non-public information during the Terra ecosystem collapse.

Jane Street denied the initial charges filed in February, calling them "desperate" and "baseless," and asked the court to dismiss the case.

According to the lawsuit, Jane Street's information advantage allegedly came from a private backdoor Telegram channel between former Terraform intern Bryce Pratt (who was working at Jane Street at the time) and his former Terraform colleagues.

The bankruptcy administrator states that this contact helped Jane Street sell UST positions at near face value before the algorithmic stablecoin collapse, then establish short positions, profiting approximately $134 million as Terra's $40 billion ecosystem imploded.

In an internal communication cited in the lawsuit, Pratt is said to have joked that colleagues should feel "a little happy" about having an "information advantage."

With this advantage, Jane Street allegedly sold all UST holdings on May 7, 2022, clearing about 193 million tokens. Its largest trade was selling $85 million worth of UST on the decentralized exchange Curve Finance, just nine minutes after Terraform quietly withdrew $150 million UST liquidity from the same pool.

This trade is significant because post-collapse analysis of Terra has long focused on a large swap on Curve that helped push the token away from its $1 peg. The lawsuit now alleges that the wallet involved belongs to Jane Street.

When a crypto analytics firm later told a Jane Street contact that the firm "made a big profit," internal communications cited in the case show traders worried about how their wallet could be identified and then discussed how to "disable" it.

"This lawsuit is an attempt to extract money amid the well-known losses suffered by Terra and Luna holders, which were caused by Terraform Labs management's multi-billion dollar fraud," a Jane Street spokesperson said. "As demonstrated by the motion to dismiss filed with the court last month, we will vigorously defend ourselves against these baseless opportunistic allegations."

The lawsuit also names Jane Street co-founder Robert Granieri and trader Michael Huang. It accuses them of violating federal securities laws and the Commodity Exchange Act, seeking to recover profits to pay creditors.

A 2023 federal court ruling in another SEC case found that UST and Luna qualify as securities, strengthening the legal basis for the new lawsuit.

The lawsuit states that on May 18, 2022, five days after UST hit bottom, Jane Street provided a job offer to Terraform's research director. He joined two weeks later.