Terraform Labs sues Jump Trading for $4B over alleged $1B profit from Terra collapse. Terraform Labs is suing Jump Trading for $4B over alleged market manipulation and hidden deals tied to Terra's downfall. Terraform Labs' court-appointed administrator has sued Jump Trading for secretly supporting the TerraUSD stablecoin, misrepresenting its stability, and profiting from the ecosystem's collapse. As a result, Todd Snyder is seeking $4 billion in damages from the firm's co-founder, William DiSomma, and Kanav Kariya, a former intern who later became president of its crypto-trading business. Details from the case. A Wall Street Journal report reveals that the case was filed on Thursday in the U.S. District Court for the Northern District of Illinois, Eastern Division. The lawsuit accuses Jump of unlawfully profiting from its relationship with Terraform while investors suffered losses. The SEC has previously stated in court filings that the company made approximately $1 billion in gains by selling Luna, Terraform's sister token. Snyder said Jump "actively exploited the Terraform Labs ecosystem through manipulation, concealment, and self-dealing," calling the lawsuit a necessary step toward accountability for what he described as the largest collapse in crypto history. The complaint details that as early as 2019, the two firms entered into secret agreements that allowed Jump to purchase millions of Luna tokens at prices far below market value. In one deal, it allegedly bought the cryptocurrency for 40 cents per coin, later selling when prices exceeded $110. The trading company is also accused of entering into a confidential "gentlemen's agreement" to help maintain TerraUSD's dollar peg, an arrangement the lawsuit says was concealed to avoid regulatory scrutiny. In May 2021, TerraUSD briefly slipped below its $1 peg before recovering after Jump allegedly intervened by purchasing the stablecoin, while publicly crediting the rebound to Terraform's algorithm. In the aftermath, the case says the company also renegotiated its contracts to remove vesting requirements, which allowed it to receive and sell Luna tokens freely on the open market. You may also like: After the formation of the Luna Foundation Guard, the complaint further claims that nearly 50,000 Bitcoin were transferred to Jump during the May 2022 crisis without any written agreement. It also alleges that DiSomma contacted other trading firms in search of bailout funding, actions that are said to have fast-tracked Terraform's collapse. Jump denies accusations. Jump has since denied the allegations. "This is a desperate attempt by Terraform Labs to shift blame and financial responsibility away from the crimes that Do Kwon committed," a company spokeswoman said, adding that it plans to defend itself against the 'baseless claims.' Terraform collapsed in 2022 after its stablecoin lost its dollar peg, which sent Luna to near zero and wiped out roughly $40 billion in value. The firm later filed for bankruptcy in January 2024 and agreed to pay about $4.5 billion to settle with the SEC, while founder Do Kwon was sentenced last week to 15 years in prison after pleading guilty to criminal charges. SECRET PARTNERSHIP BONUS for CryptoPotato readers: Use this link to register and unlock $1,500 in exclusive BingX Exchange rewards (limited time offer).

Securities Expert Witness testimony excluded in major cryptocurrency fraud case. The Southern District of New York delivered a significant ruling on expert witness testimony in Securities and Exchange Commission v. Terraform Labs Pte Ltd. et al, No. 1:2023cv01346, a high-profile cryptocurrency securities fraud case that proceeded to trial in January 2024. The court's comprehensive analysis of expert witness admissibility provides crucial guidance for practitioners utilizing Securities Expert Witness testimony in complex financial fraud litigation. Case background and parties. The Securities and Exchange Commission brought enforcement action against Terraform Labs Pte Ltd. and related defendants, alleging violations of federal securities laws in connection with the marketing and sale of cryptocurrency tokens LUNA and MIR. The case centered on allegations that defendants conducted unregistered securities offerings and engaged in fraudulent conduct in connection with their cryptocurrency operations. The litigation involved multiple complex claims, including fraud allegations under Counts I-III of the Amended Complaint, unregistered securities offerings under Sections 5(a) and 5(c) of the Securities Act in Count IV, and alleged unregistered security-based swap transactions in Counts V and VI. The multifaceted nature of the case required extensive expert testimony to address the technical and financial complexities inherent in cryptocurrency markets and securities law compliance. Expert Witness battle and court's analysis. The court faced competing motions regarding the admissibility of expert testimony from both sides. The SEC sought to present testimony from Dr. Bruce Mizrach and Dr. Matthew Edman, while defendants proposed their own expert witnesses including Dr. Terrence Hendershott, Mr. Raj Unny, and Dr. Christine Parlour. Judge Jed S. Rakoff conducted a thorough Daubert analysis of each proposed expert's methodology, qualifications, and the reliability of their proposed testimony. The court's ruling demonstrated the critical importance of proper foundation and methodology in securities expert witness testimony, particularly in emerging areas like cryptocurrency markets where established precedents may be limited. The court denied defendants' motions to exclude the SEC's experts, finding that Dr. Mizrach and Dr. Edman's proposed testimony met the reliability standards required under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals. The SEC's experts presumably demonstrated sufficient qualifications and employed reliable methodologies in their analysis of the alleged securities violations. Conversely, the court granted the SEC's motion to exclude defense experts Mr. Raj Unny and Dr. Christine Parlour, finding their proposed testimony failed to meet admissibility standards. This selective exclusion highlights the court's careful scrutiny of expert qualifications and methodologies, particularly in complex securities cases where technical expertise is essential to jury comprehension. Impact on case outcome. The court's expert witness rulings significantly shaped the litigation's trajectory. While denying defendants' motion to exclude the SEC's experts, the court granted summary judgment for the SEC on Count IV, finding that defendants violated Sections 5(a) and 5(c) of the Securities Act through unregistered offers and sales of LUNA and MIR tokens. However, the court granted summary judgment for defendants on Counts V and VI regarding alleged unregistered security-based swaps, demonstrating that expert testimony alone cannot overcome insufficient legal foundations. Most significantly, the court denied both parties' cross-motions for summary judgment on the core fraud claims in Counts I-III, allowing these claims to proceed to jury trial. Broader implications for Securities Expert Witness practice. The Terraform Labs decision underscores several critical principles for securities expert witness testimony. Courts maintain rigorous standards for expert admissibility, particularly in emerging financial markets where novel legal theories intersect with complex technical concepts. The ruling demonstrates that even qualified experts may face exclusion if their methodologies lack sufficient reliability or their testimony fails to assist the trier of fact. The case proceeded to jury trial on January 29, 2024, with jury selection occurring on January 24, 2024, providing a complete resolution of the disputed fraud claims. This comprehensive litigation offers valuable precedent for practitioners navigating the intersection of securities law, expert witness testimony, and emerging financial technologies in federal court proceedings.

Galaxy Digital allegedly began acquiring Luna in 2020 directly from Terraform Labs at a significant discount, with the understanding that it would use its influence to drive interest in the token.