Jump Trading manipulated UST price for $1.3B profit, class action lawsuit alleges

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Jump Trading manipulated the price of UST stablecoin for months and made $1.3 billion in profits, a new class-action lawsuit alleges. The lawsuit alleges that it entered an agreement in 2021 with Terraform Labs and was the unnamed trading firm in a lawsuit against Do Kwon’s company by the U.S. Securities and Exchange Commission (SEC) earlier this year.

The class-action lawsuit was filed in Illinois by Taekwoo Kim, a New Jersey resident who purchased UST and “suffered losses as a result of Defendants’ conduct.” UST and its sister token LUNA crashed last May, wiping out over $40 billion and sparking the collapse of other digital asset giants.

BREAKING:

A class action lawsuit has been filed against Jump Trading, accusing the firm of artificially inflating the prices of UST and aUST tokens

— Whale (@WhaleFUD) May 12, 2023

Kim alleges that Jump was an early investor in Terraform Labs (TFL), the Kwon-led company behind the Terra ecosystem. TFL loaned out tens of millions of LUNA tokens to the trading firm to provide market-making services for UST and Anchor UST (aUST). The agreement also entitled Jump to purchase LUNA tokens at a steep discount.

In May 2021, a year before its collapse, UST failed to stay pegged to $1 as TFL’s algorithms failed. Rather than acknowledge it, TFL and Kwon allegedly conspired with Jump to manipulate the price of UST, according to the lawsuit.

“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.”

As a reward, TFL sold LUNA to Jump at a steep discount, sometimes greater than 99%, from their then-current market price. The trading firm would later sell these tokens for more than $1.28 billion in profits.

Sources earlier this year revealed that at some point, TFL sold LUNA to Jump at 40 cents while the token was trading at $90 in the market, a 99.55% discount.

Jump Trading was the mystery trading firm in the SEC lawsuit

In February this year, the U.S. SEC filed a complaint against TFL and Kwon for defrauding billions of dollars from investors. In the complaint, the agency first revealed that a trading partner for TFL had booked $1.28 billion in profit.

In his lawsuit, Kim says that “multiple individuals with knowledge of Jump’s May 2021 intervention to manipulate the prices of UST and aUST have stated that the unnamed firm that aided TFL and Kwon in their manipulation was, in fact, Jump Trading.”

Kim alleges that Jump violated the Commodities Exchange Act by aiding and abetting TFL’s efforts to manipulate the price of UST. He is seeking a judgment awarding him and other UST investors all appropriate damages in an amount to be determined at trial. He is also seeking injunctive relief that includes rescission, disgorgement, and restitution.

U.S. prosecutors have tied Jump to Terra and TFL for months now. In March, Bloomberg reported that U.S. prosecutors were scrutinizing Telegram chats between employees of Jump, Jane Street, and FTX’s Alameda Research on bailing out UST through market manipulation.

Meanwhile, Jump Trading has been scaling back its operations in the U.S. as regulatory scrutiny rises. Sources revealed a week ago that the company plans to expand internationally.

Watch: Regulatory compliance for blockchain & digital assets