Recent court filings made by the SEC as part of its ongoing fraud lawsuit against Terraform Labs co-founder Do Kwon confirmed that US-based Jump Trading was the unnamed trading firm listed in the agency’s initial complaint and demand for a jury trial, the WSJ has reported.
That complaint was filed in February and alleged that when the TerraUSD stablecoin lost its peg to the US Dollar in May 2021, Kwon and Terraform Labs entered into a secret deal with Jump Trading to prop up its price. As part of that deal, Jump purchased large amounts of TerraUSD, which drove up the stablecoin’s price and helped it regain its peg.
The crash wiped out about $40 billion in value from the crypto markets and cost thousands of investors their savings, but it netted Jump Trading about a $1bn profit through its dealing with Terraform Labs, according to the SEC.
Jump hasn’t been accused of any wrongdoing in connection with TerraUSD or the coin’s May 2022 collapse.
“Automatically self-healing”
One year before the collapse, in May 2021, the stablecoin TerraUSD fell below its $1 peg to nearly 90 cents before staging a recovery. Kwon later touted the rebound as an example of how TerraUSD “automatically self-heals,” touting the algorithmic mechanism behind TerraUSD, which would supposedly function to keep it tied to the dollar, the SEC said in its February lawsuit.
Kwon failed to disclose the deal with a US-based firm that purchased tens of millions of dollars of TerraUSD to push its price back to $1, the SEC said. Documents from the SEC show the firm in question was Jump, according to the WSJ.
In one of those documents, Kwon emailed investors in Terraform Labs about an “important arrangement we’ve entered into with Jump Trading” and asked them to keep the news confidential. That email – sent in January 2020 – outlined a deal in which Jump would improve the liquidity of “Terra and Luna,” an apparent reference to TerraUSD and its sister cryptocurrency Luna.
Options to buy
Jump would be rewarded with options to buy Luna at prices of 30, 40 and 50 cents over the following three years, Kwon said in the email.
At the time of Kwon’s email, Luna was trading at about 20 cents. It surged to above $90 in late 2021 and early 2022, during the height of the popularity of Luna and TerraUSD, so if you bought it low and sold it to investors during the Luna bull market, it would have been a windfall.
An amended version of the Jump agreement from July 2021 showed that Terraform Labs committed to deliver 61.5 million Luna to Tai Mo Shan (a crypto-trading affiliate of Jump) in monthly installments. The amended agreement came after Kwon urged Jump to save his stablecoin in May 2021, and it removed certain conditions that Jump had previously needed to meet to receive the Luna tokens, according to the SEC.
Kwon disputes charges
Kwon, through his lawyers, has asked a judge to dismiss the SEC’s lawsuit, saying the agency does not have jurisdiction and disputing the fraud allegations.
So far, US prosecutors have charged Kwon with eight criminal counts of fraud stemming from the TerraUSD collapse.
Kwon has been in Montenegro, where he was arrested while trying to flee to Dubai on a private jet. His native country, South Korea, has sought his extradition.