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Quant trading giant Jane Street is pushing to dismiss Terraform Labs’ lawsuit accusing it of insider trading, calling the case a “cash grab” by the bankrupt crypto firm’s estate and arguing it is being unfairly blamed for a fraud it did not create. Terraform accuses the firm of insider trading, but Jane Street Capital says Terraform’s founder, Do Kwon, already admitted to and has been convicted of fraud.
The legal battle began in February 2026, when Terraform’s bankruptcy administrator sued Jane Street for using inside information to withdraw millions of dollars before the Terra ecosystem collapsed in May 2022.
How did a $40 billion crypto project collapse, and what did Jane Street have to do with it?
In May 2022, large holders began selling Terraform’s UST stablecoin, and the price broke it’s $1 peg. The algorithm printed more LUNA (Terraform’s crypto coin) to fix it, but this just made the coin worth less. Both tokens wen’t into a free fall and crashed to almost zero within days, wiping out over $40 billion in value.
The reason UST crashed in the first place was that Terraform lacked real-dollar reserves backing the stablecoin. This meant that the whole system could collapse if people tried selling UST at once.
The SEC later discovered that Terraform lied about a Korean payment app called Chai for years. Apparently, the company told investors that the payment app processed real transactions on the Terraform blockchain and even programmed fake transactions to back their claims.
Do Kwon now serves a 15-year prison sentence after pleading guilty to conspiracy and wire fraud in December 2024. He said he was, in his own words, “alone responsible for everyone’s pain.”
What exactly is Jane Street accused of, and why does it say the lawsuit should be thrown out?
As recently reported by Cryptopolitan, the Terraform bankruptcy estate accuses Jane Street of using private information as Terraform’s trading partner to profit during the crash. According to the complaint, Jane Street bet that prices would fall starting May 8, 2022, and sold off other assets on May 7.
The ecosystem crashed hours later.
Jane Street responded and said the “private information” was already public. According to the quant firm, Terraform had already announced the transition to a new liquidity pool weeks before, quashing any claims of back-channel communication.
The defendant wrote in their filing, “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.”
Jane Street also raised two legal defenses: the Wagoner rule and a second one about geography. Under the Wagoner rule, Terraform cannot make Jane Street pay for its own wrongdoing, since it created the fraud that caused the collapse.
In the second defense regarding geography, Jane Street argues that Terraform has not proven that the actual trades occurred within the United States. Because U.S. securities law applies to U.S. transactions, American courts may not have jurisdiction to hear the case at all.
Jane Street now asks the court to dismiss the entire case “with prejudice.”
Did Jane Street really dump Bitcoin every day at 10 AM, and what do analysts say?
Claims that Jane Street was intentionally selling Bitcoins every day at exactly 10 AM Eastern Time spread like wildfire across the internet.
A popular crypto account called Cark posted on X, accusing Jane Street of “running an algorithm” to dump Bitcoin at market open for months. According to crypto influencer Justin Bechler, Jane Street made good use of its $790 million stake in BlackRock’s iShares Bitcoin Trust (IBIT) during that time. He says the firm would make a profit by selling real Bitcoin at 10 AM to push the price down, then buy IBIT shares at the now-lower price.
“The public just sees accumulation. The actual position could be a massive short that looks like a long because the offsetting half of the trade is invisible under current disclosure rules,” Bechler wrote on X. “The 13F is a photograph of one side of the balance sheet. Nobody outside the firm can see the other side.”
However, several analysts pushed back hard on the accusations.
Julio Moreno, head of research at the on-chain data platform CryptoQuant, posted on X, saying that buying spot Bitcoin and selling futures at the same time was completely normal, and that hundreds of firms do it.
Economist Alex Krüger called the theory a “flawed conspiracy,” while Bitcoin analyst Sunny Decree called it “FAKE NEWS.”
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