In every court hearing, a new layer is presented. Right now, the Terra land is full of chaos as the firm copes with misleading chat history, forged document claims, and whatnot! The latest is Jump Trading. Do Kwon, the founder of Terraform Labs, is facing legal action over allegations of misleading investors regarding the terraUSD stablecoin, whose collapse in 2022 had significant repercussions in the crypto sphere.
The case is now spotlighting market maker Jump Trading, which is believed to have profited substantially as the ecosystem crumbled. The collapse of the terraUSD stablecoin in May 2022 had a profound impact on the crypto market, signaling the onset of crypto winter. Kwon is facing a lawsuit from the U.S. Securities and Exchange Commission (SEC) for allegedly providing false information to investors.
Do Kwon’s Mess-up Story of Jump Trading
Recent court documents highlight the critical role of Jump Trading in the case. But what is Jump trading? Shorting is a bet on price decline. An investor borrows and sells, with a target to repurchase at a lower price, profiting from the difference.
That’s where the SEC intervened; the case hinges on an incident from the previous year, where UST briefly lost its peg to the dollar. While Kwon assured investors that the coin’s value remained stable thanks to its automated algorithm, the SEC contends that it was, in fact, Jump Trading’s intervention at Terraform’s request that maintained the peg. These conflicting narratives have become a central point of contention in the legal proceedings.
Kwon’s defense maintains that Jump Trading’s activities did not directly cause the peg restoration in May 2021. They argue that the de-pegging in May 2022 resulted from a deliberate attempt by third parties to short UST, prompting a public intervention to counteract the short.
Additionally, Elliptic’s analysis shows TerraUSD and Luna’s investors lost $42 billion, causing a widespread crypto crash affecting Bitcoin, Ethereum, and Tether.
Jump Trading’s Previous Setback with FTX
The defense team also argues that the SEC lacks jurisdiction, as the assets are currencies, not securities. This legal gray area mirrors ongoing cases involving exchanges like Binance and Coinbase.
Kwon, arrested for possessing false ID documents in March, is currently detained in Montenegro. A recent biography of Sam Bankman-Fried indicated that Jump Trading incurred nearly $300 million in losses when FTX, Bankman-Fried’s exchange, faced a significant setback in November 2022.