According to the complaint, Jane Street used material nonpublic information related to Terraform’s internal operations to gain an unfair trading advantage in TerraUSD (UST) and Luna markets during a critical period.

Claims of Front-Running and Market Advantage

The lawsuit alleges that Jane Street obtained sensitive, price-moving information from individuals connected to Terraform Labs before it became public. Armed with this knowledge, the firm is accused of engaging in “front-running” — placing trades ahead of anticipated large market moves to secure profits.

Snyder argues that Jane Street leveraged its market relationships to position itself advantageously during one of the most consequential events in crypto history. On behalf of affected creditors, the wind-down team has stated it intends to pursue all legal remedies available.

Jane Street has firmly denied the allegations, characterizing the lawsuit as opportunistic and without merit. The firm has indicated it will vigorously defend itself against the claims.

The Events That Triggered the Collapse

The chain of events dates back to May 7, 2022, when Terraform Labs quietly withdrew 150 million TerraUSD from the Curve3pool liquidity platform. The lawsuit claims that roughly 10 minutes before any public disclosure, a wallet allegedly linked to Jane Street withdrew 85 million UST from the same pool.

The withdrawals contributed to market instability. The following day, Terraform founder Do Kwon stated that the transaction was intended to move liquidity to a new stablecoin pool. However, confidence in TerraUSD quickly eroded.

By May 9, UST had begun losing its 1:1 dollar peg, and the Luna token rapidly collapsed. Within a week, approximately $40 billion in market value was wiped out, triggering widespread losses and impacting multiple crypto firms exposed to the ecosystem.

Aftermath and Ongoing Legal Scrutiny

Founded in 2018 in Singapore by Do Kwon and Daniel Shin, Terraform Labs was best known for the Terra blockchain, Luna token, and algorithmic stablecoin TerraUSD. The company filed for bankruptcy in January 2024, and a wind-down trust assumed control later that year.

In August, Do Kwon pleaded guilty to two criminal charges and received a 15-year prison sentence.

The lawsuit against Jane Street reopens debate over accountability in the Terra collapse. While the outcome remains uncertain, the case may have broader implications for insider trading enforcement and market conduct standards within the crypto industry.

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Kwon pleaded guilty to charges of fraud and conspiracy to commit wire fraud. Engelmayer noted that when UST lost its peg in May 2021, Kwon falsely claimed that an algorithm had restored its value, while secretly arranging for a trading firm to purchase millions of dollars in UST to artificially inflate its price. The judge also criticized Kwon’s mocking behavior on social media, citing a Twitter post where he belittled investors.

Court Proceedings and Kwon’s Flight Attempts

During the trial, Engelmayer reviewed Kwon’s attempts to evade the law. Kwon traveled on false passports to Serbia and Montenegro before being caught en route to Dubai. The court described this as “despicable,” especially since he publicly encouraged retail investors to hold UST while he and close associates exited their positions.

Following the sentencing, Jay Clayton, head of the Southern District of New York for the U.S. Department of Justice, stated: “Do Kwon devised complex schemes to mislead investors and inflate the value of Terraform’s cryptocurrencies for his own benefit. Once exposed, he conducted a deceptive PR campaign, laundered proceeds from illegal schemes, and attempted to seek political protection abroad. Fraud is fraud, and our office will relentlessly pursue justice for investors, regardless of where perpetrators flee.”

In August, Kwon admitted to conspiring to commit commodities fraud, securities fraud, and wire fraud connected to Terraform Labs’ operations. In court, he acknowledged that he knowingly participated in a plan to defraud UST buyers. Kwon also expressed remorse: “I want everyone to know I have spent all my time thinking about what I could have done differently and what I can do now. It has been four years since the incident, and I haven’t seen my family in three. I want to serve my restitution in my own country.”

Investors and Legal Implications

Judge Engelmayer deemed the defense’s requested five-year sentence “utterly unreasonable.” He said even the government’s suggested 12-year term would not sufficiently deter Kwon or future fraudsters.

Factors considered in the court’s decision included:

• Total funds lost and number of victims

• Kwon’s attempts to evade the law

• Misleading and mocking conduct on social media

• Deceiving investors while protecting personal positions

The Terraform collapse is now recorded as one of the largest scandals in crypto history, and Kwon’s sentence sets a significant precedent for the digital asset industry.

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Do Kwon’s Guilty Plea and Latest Developments

During the U.S. court hearing, the judge confirmed that Do Kwon will admit guilt to the two main charges of conspiracy to defraud and wire fraud. This development is considered a critical step in the legal process surrounding the collapse of TerraUSD, which sent shockwaves through the crypto market.

The TerraUSD Crisis and Do Kwon’s Legal Journey

In 2022, TerraUSD (UST) — a stablecoin with a market value of $40 billion — and its sister token Luna collapsed, creating a massive shock in the crypto market. Billions in investor funds were wiped out, many firms went bankrupt, and the broader market entered a deep crisis.

Following the collapse, Do Kwon faced multiple serious charges including fraud, market manipulation, money laundering, and wire fraud. In 2023, he was arrested in Montenegro while attempting to flee with a forged passport and was held for nearly a year before being extradited to the United States.

In April 2025, the U.S. Securities and Exchange Commission (SEC) sued Kwon and Terraform Labs, accusing them of misleading investors. Kwon agreed to pay $4.47 billion in damages and liquidate company assets to compensate victims.

A Key Turning Point for the Crypto Industry

Kwon’s guilty plea is seen as one of the most significant legal moments in the history of altcoin and blockchain-related cases. It also reflects growing regulatory scrutiny over algorithmic stablecoins and complex financial models.

The case highlights the challenges of prosecuting cross-border crypto crimes. The jurisdictional dispute between the U.S. and South Korea revealed just how complicated regulation and enforcement can be in a market without clear geographic boundaries.

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