The United States Securities and Exchange Commission (SEC) recently filed a lawsuit that identified Jump Trading, a traditional trading firm, and its crypto-focused subsidiary, Jump Crypto, as an undisclosed investor responsible for injecting $1.3 billion into the collapsed Terra blockchain.
Jump Trading Faces Lawsuit
According to a court filing with the Illinois District Court, Jump Trading’s financial involvement with Terraform Labs (TFL) dates back to November 2019. Around that time, the trading platform borrowed millions of Terra LUNA cryptocurrencies from Terraform Labs in exchange for “market-making services for transactions in LUNA, UST, and aUST.”
In May 2021, precisely one year before the eventual crash of the blockchain network, the algorithmic stablecoin UST of Terra failed to maintain its peg to $1. To restore the peg, Do Kwon, the founder of Terra, collaborated with Jump Trading to manipulate the market metrics of the network’s assets. As part of this collaboration, 62 million UST were sold to Jump Trading between May 23-27, 2021.
“Rather than publicly acknowledging the inability of TFL’s algorithm to maintain UST’s advertised peg price (which was fundamental to the perceived market value of UST and aUST), TFL and Kwon secretly schemed with Defendant Jump to manipulate the market prices for UST and aUST by making secret, coordinated trades to prop up UST to its $1 peg,” the court filing stated.
Terraform Labs also agreed to sell LUNA cryptocurrencies to Jump at a significant discount of about 30, 40, and 50 cents within three years to reward Jump Trading. Those assets were later resold by Jump Trading, netting a profit of $1.28 billion.
The U.S. SEC believes that Jump Trading’s action had a ripple effect in leading to the crash of the Terra ecosystem, which swept $40 billion worth of users’ funds from the market. Currently, Jump Trading is yet to acknowledge or deny the claims of the U.S. SEC.
More Regulatory Watchdogs Over Terra Business Failure
Two months ago, the U.S. Department of Justice revealed its ongoing investigation into the Terra crash and its purported algorithmic stablecoin. Regulatory authorities in other parts of the world, like Singapore and South Korea, are also looking into the network’s failure.
Meanwhile, Do Kwon, who was arrested in Montenegro while fleeing under a fake identity, has been granted a $436,000 bail.
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