Jane Street asks court to dismiss Terraform Labs’ insider trading lawsuit

Jane Street has filed to dismiss the case against it lodged by former partner Terraform Labs, which has accused the quant firm of precipitating the collapse of the UST/LUNA algorithmic stablecoin.

In the document filed at the Southern New York District Court, Jane Street and several individual defendants argue the lawsuit is a meritless attempt by Terraform’s bankruptcy estate to shift blame for the collapse of the multi-billion-dollar Terra-Luna ecosystem.

“This case is an attempt by the estate of Terraform Labs to extract cash from Jane Street to foot the bill for a fraud that Terraform itself perpetrated on the market,” the defendants wrote.

Jane Street asked the court to throw out the entire lawsuit with prejudice, meaning the plaintiff would be unable to refile the same claims.

Key to Jane Street’s argument is that much of the Terraform case has already been litigated, and that “Terraform’s fraud scheme — in which Jane Street had no involvement — has already been prosecuted, adjudicated, and punished.”

Terraform founder Do Kwon pled guilty to conspiracy and wire fraud charges in December and is currently serving a 15-year prison sentence, while a unanimous jury found Terraform and Kwon civilly liable for securities fraud.

The filing notes Kwon had even admitted he was “alone responsible for everyone’s pain.”

Insider trading allegations

Additionally, Jane Street argued that Terraform’s claims of insider trading and market manipulation are “self-defeating,” given that Jane Street’s largest trades occurred after materially important information about the health of UST/LUNA was made public.

“Plaintiff points to the timing of Terraform’s transition to a new liquidity pool, but admits that the transition was publicly announced weeks earlier, acknowledges there was no market reaction to the announcement, and offers no plausible explanation for why the transition would have any impact on UST’s value,” the filing reads.

Jane Street did begin acquiring a sizable short position on May 8 and sold assets on May 7, but notes Terraform has failed to identify “information that was material or non-public,” and cannot point to specific “back-channel communications” where Jane Street would have gained an edge.

The firm also cited the so-called “Wagoner rule,” which prevents the bankruptcy estate from suing a third party to recover losses caused by its own fraud, and alleges the claims are impermissibly extraterritorial in that Terraform failed to prove “that the trades in question took place in the U.S.”