Federal Judge Rejects Arbitration in TerraUSD Manipulation Lawsuit
On Friday, May 9, 2025, Judge Georgia Nick Alexakis of the United States District Court for the Northern District of Illinois denied a motion by Jump Trading, LLC, its cryptocurrency division Jump Crypto Holdings, LLC, and executives Kanav Kariya and William DiSomma to compel arbitration in a class action lawsuit filed by plaintiffs Taewoo Kim, Kashyap Patel, Kerry Woolley, and Ken Worsham. The plaintiffs, representing a proposed class, allege that the defendants collaborated with Terraform Labs Pte. Ltd. to manipulate the price of the stablecoin TerraUSD (UST), resulting in significant financial losses.
The lawsuit, initiated in May 2023 by Kim and later amended in August 2024 to include additional plaintiffs and defendants, claims violations of the Commodity Exchange Act, Commodity Futures Trading Commission regulations, and common law unjust enrichment.
The plaintiffs assert that the defendants worked with Terraform Labs and its founder, Do Kwon, to artificially prop up UST’s price in May 2021 after its peg to the U.S. dollar failed. According to the complaint, Jump Crypto purchased over 62 million UST tokens to restore the $1 peg, allegedly inflating the stablecoin’s value. In return, Terraform Labs reportedly sold 65 million LUNA tokens, a related digital asset, to Jump at a steep discount, yielding Jump a $1.28 billion profit. The plaintiffs further allege that the defendants concealed these actions, contributing to UST’s eventual collapse in May 2022, which caused nearly $19 billion in losses, including over $2 million for the named plaintiffs.
The defendants sought to compel arbitration based on an agreement between the plaintiffs and Terraform Labs, found in the terms of service for the Anchor Protocol, a feature of the Terra blockchain. Although the defendants were not signatories to this agreement, they argued that equitable estoppel principles required the plaintiffs to arbitrate the dispute. The Anchor Protocol’s terms include a broad arbitration clause delegating disputes, including questions of arbitrability, to arbitration in Singapore under the Singapore International Arbitration Centre’s rules.
In her ruling, Judge Alexakis addressed three key issues: who should decide whether non-signatories can compel arbitration, whether state or federal law applies to equitable estoppel, and whether the defendants could enforce the arbitration agreement. The court determined that it, not an arbitrator, should resolve whether the non-signatory defendants could compel arbitration, citing the Seventh Circuit’s precedent in CCC Intelligent Solutions Inc. v. Tractable Inc. The ruling emphasized that courts must first establish whether a contract exists between the parties, a question complicated by the defendants’ non-signatory status.
On the second issue, the court applied Illinois state law to evaluate equitable estoppel, rejecting the defendants’ argument for federal common law. The decision noted that Seventh Circuit precedent consistently requires state law for determining a non-party’s right to enforce an arbitration agreement. The court declined to apply Singaporean law, as specified in the Anchor Protocol’s terms, because the provision applied to disputes between plaintiffs and Terraform Labs, not the defendants, and the defendants failed to demonstrate a significant conflict between Illinois and Singaporean law.
Finally, the court found that the defendants could not compel arbitration under Illinois equitable estoppel principles. Illinois law requires a party claiming estoppel to show reasonable reliance on the other party’s representations without knowledge of the facts. The defendants did not identify any such representations by the plaintiffs, nor did they meet the burden of proving estoppel by clear and convincing evidence. Consequently, the court denied the motion to compel arbitration, keeping the case in federal court.
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