Jane Street Faces $40B Lawsuit Over Alleged Terra-Luna Insider Trading

The collapse of Terra-Luna in 2022 wasn't just crypto's darkest hour—it may have been Wall Street's most profitable exit. A bombshell lawsuit filed this week accuses Jane Street Group LLC of using stolen information to cash out before the $40 billion implosion, while retail investors were still being told to hold.

The 10-Minute Trade That Changed Everything

The complaint, filed by Todd R. Snyder, the bankruptcy court-appointed administrator winding down Terraform Labs, details a damning sequence that's hard to dismiss as coincidence. On May 7, 2022, Terraform Labs withdrew 150 million TerraUSD from the Curve3pool without public announcement. Within 10 minutes, a wallet allegedly linked to Jane Street withdrew an additional 85 million TerraUSD from the same pool.

This wasn't just any trade. The lawsuit characterizes it as Jane Street's largest-ever single swap—a move that allegedly triggered the market panic that sent TerraUSD spiraling off its dollar peg. Ten minutes. Not hours, not days. Minutes.

The Back-Channel That Leaked It All

Jane Street's relationship with Terraform dates back to 2018, when the firm signed on as a liquidity and market-making partner. But activity reportedly surged in 2022 after Bryce Pratt, a former Terraform intern, reconnected with his old colleagues.

Pratt is accused of creating a private communication channel with Terraform's business development lead—described in the complaint as a "back-channel source for material non-public information." On May 9, Pratt sent a group message to Do Kwon and Terraform staff, floating offers to buy Bitcoin or Luna. The timing reads less like a rescue offer and more like a firm positioning itself while holding all the cards.

The lawsuit also names Jane Street co-founder Robert Granieri and employee Michael Huang alongside Pratt as defendants.

Wall Street's Defense: Blame the Fraud

Jane Street has called the lawsuit a "desperate" and "baseless" attempt to extract money. A spokesman stated that losses suffered by Terra and Luna holders were the result of a "multibillion-dollar fraud" perpetrated by Terraform's own management.

It's a reasonable deflection on its face. Do Kwon did commit fraud. He pleaded guilty and was sentenced to 15 years in a U.S. prison. Terraform also agreed to pay $4.47 billion in penalties.

But here's the uncomfortable truth: Terraform's guilt doesn't automatically excuse profiting from insider knowledge of its collapse. Both things can be true simultaneously.

This Isn't an Isolated Case

The Jane Street lawsuit doesn't stand alone. Last December, Snyder sued Jump Trading and its top executives, claiming Jump "actively exploited" the Terraform ecosystem through a backdoor deal to inflate the value of TerraUSD before it imploded, seeking $4 billion in damages.

Snyder alleges Jump was also involved in circulating confidential information to Jane Street. Jump has denied the claims.

What's emerging is a pattern: Wall Street's most sophisticated trading firms sitting at the center of crypto's worst disaster—not just as bystanders, but as alleged participants with advance notice.

The Legal Minefield Ahead

Legal experts note that insider trading claims in crypto are complex, since courts must decide what counts as securities and what constitutes material non-public information in token markets.

If the claims proceed, Jane Street may need to disclose internal communications and trading data tied to TerraUSD. This discovery process could expose how major market makers manage risk when protocols begin to fail.

The message is becoming clear to the broader crypto market: the firms that claimed to be providing liquidity may have been extracting it.

What Happens Next?

The lawsuit seeks damages, disgorgement, interest, and a jury trial in the U.S. District Court for the Southern District of New York (Case No. 1:26-cv-1504). The claims invoke the Commodity Exchange Act, Securities Exchange Act, fraud, and unjust enrichment.

According to reports, Jane Street desks were given an urgent memo to immediately cease "manipulative Bitcoin trading activity"—with algos reportedly shut down. This hasn't been confirmed, but it's trending on X.

What's at stake goes beyond money. This case could redefine how courts view insider trading in crypto markets and whether Wall Street's most sophisticated firms can be held accountable when they allegedly profit from collapse rather than prevent it.

The question now belongs to a federal judge: was this informed trading or just bad timing? The answer could reshape how crypto markets operate with traditional finance players involved.