Jane Street seeks dismissal of Terraform estate suit

Jane Street asked a U.S. federal court to dismiss a lawsuit filed in February 2026 by the bankruptcy administrator for Terraform Labs. The administrator accuses the quantitative trading firm of using nonpublic information as a trading partner to withdraw funds and place bets that profited from the Terra ecosystem collapse in May 2022. Jane Street’s filing calls the claim a “cash grab” and asks the court to dismiss the case with prejudice.

The estate alleges Jane Street began betting that prices would fall starting May 8, 2022, and sold other assets on May 7, hours before the collapse. Jane Street responds that the information at issue was already public because Terraform had announced a move to a new liquidity pool weeks earlier, and therefore there was no secret back-channel communication. The filing states: “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 invoked the Wagoner rule, arguing the estate cannot force third parties to cover harms the company caused. The firm also raised a jurisdictional defense, saying the complaint does not show that the trades occurred inside the United States and that U.S. securities laws apply only to domestic transactions.

The Terra collapse began in May 2022 after large holders began selling UST, the algorithmic stablecoin designed to maintain a $1 peg. Terraform’s protocol minted more LUNA to absorb selling pressure, which increased supply and drove down prices. Within days, UST and LUNA lost nearly all value, erasing more than $40 billion in market value. Regulators later concluded Terraform misrepresented aspects of its business and used fabricated transactions to support claims about a Korean payment app.

Terraform founder Do Kwon pleaded guilty to conspiracy and wire fraud in December 2024 and is serving a 15-year sentence. He acknowledged responsibility for the collapse, writing that he was ‘alone responsible for everyone’s pain.’

Separately, social-media posts alleged Jane Street executed daily Bitcoin sales at 10 a.m. Eastern to push spot prices down and then bought shares of an exchange-traded product at lower prices. One commentator argued public filings reveal only one side of a firm’s positions. Analysts and on-chain researchers disputed the narrative. Julio Moreno, head of research at CryptoQuant, posted that buying spot while selling futures is common market practice. Economist Alex Krüger described the theory as a flawed conspiracy, and Bitcoin analyst Sunny Decree characterized the viral claims as false.

The bankruptcy estate seeks recoveries from trading counterparties to compensate creditors and investors who lost funds in the collapse. The court has not yet ruled on Jane Street’s motion, which asks a judge to decide whether the estate has plausibly alleged trading on nonpublic, U.S.-based information and whether legal doctrines bar recovery from third parties.