Jump Trading Made $1.28 Billion by Manipulating TerraUSD, Lawsuit Claims

On Tuesday, May 9, 2023, Taewoo Kim filed a lawsuit in the U.S. District Court for the Northern District of Illinois accusing Chicago trading giant Jump Trading of purchasing substantial quantities of algorithmic stablecoin TerraUSD (UST) to manipulate its price.

The lawsuit claims that Jump Trading was an early partner and primary financial backer of Terraform Labs (TFL). Between November 2019 and September 2020, the Chicago trading giant entered into a series of agreements with TFL and its affiliates to borrow tens of millions of LUNA tokens from TFL and to provide market-making services for transactions in LUNA, UST, and aUST. In return, TFL would grant Jump Trading “the opportunity to purchase LUNA tokens at a steep discount, which could then be resold into the market to further Jump’s own profit.“

According to the lawsuit, Jump Trading purchased millions of UST tokens in May 2021 to artificially inflate the price of the stablecoin.

“In May 2021, TFL’s purported algorithm failed to keep the price of UST pegged to $1,” the lawsuit said. “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. As part of the scheme, Jump purchased more than 62 million UST tokens between approximately May 23 and May 27, 2021, causing UST’s price to artificially inflate to $1 and causing a corresponding rise in aUST’s price.”

To reward Jump Trading for its alleged manipulation of UST and aUST, TFL and its founder Do Kwon agreed to modify the parties’ prior agreements and transferred 61.4 million LUNA to Jump Trading at a fixed price of $0.40. Jump later resold those LUNA tokens into the market at a staggering profit of over $1.28 billion, the lawsuit claims.

“Jump profited from its manipulation of the price of, and market for, UST and aUST, and it would be unjust for Jump to retain the $1.28 billion in ill-gotten gains from its misconduct, as it would violate the fundamental principles of justice, equity, and good conscience, and no contract governs this dispute,” the lawsuit said.

A copy of the original filing can be found here.