Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—N.D. Ill.: Terraform’s bankruptcy administrator’s complaint seeks to hold Jump Trading accountable for $4.5B collapse, (Jan 2, 2026)

By Rebecca E. Hoffman, J.D.

The complaint requests a finding of liability and the imposition of damages against the Jump Trading defendants, asserting claims including violations of federal securities laws and the Illinois Uniform Fraudulent Transfer Act.

A complaint filed in Illinois federal district court asserted that Jump Trading, its affiliates, and its executives “have escaped relatively unscathed” after Terraform Labs PTE Ltd. and its founder Do Kwon agreed to pay $4.5 billion, and Kwon was sentenced to 15 years in prison, for the collapse that wiped out more than $40 billion in investor assets (Snyder v. Jump Trading, LLC, No. 1:25-cv-15414 (N.D. Ill. Dec. 18, 2025)).

“This lawsuit … will finally hold Jump responsible,” the administrator for Terraform’s bankruptcy stated.

‘Mint-Burn.’ Terraform issued crypto tokens called Luna Classic, and then in 2020 introduced the US Terra (UST) token, an “algorithmic stablecoin” pegged to the U.S. dollar. The two tokens were designed to stabilize each other, meaning that when the value of UST fell below a dollar, a holder could “burn” one token and receive $1 of Luna, which would drive the value back up. The opposite transaction would apply if the value rose above a dollar, the complaint explained.

According to the complaint, Jump secretly arranged to become Terraform’s market maker, in exchange for copious quantities of Luna at below market value. Jump stated publicly that the mint-burn relationship would maintain UST’s value, but the coin experienced a “depeg” in 2021, at which time Jump engaged in trading to restore it and prevent a collapse. “These trades were antithetical to any normal or legitimate market-making activities,” the complaint said. Jump continued to mislead investors by claiming that the restoration was due to the algorithm working as promised. Investors took the bait, propelling Terraform’s market capitalization upwards of $45 billion.

LFG. In 2022, Jump and Kwon established Luna Foundation Guard (LFG), which was supposed to hold reserves to bolster the peg where needed. “Jump and Terraform trumpeted LFG, and its alleged independence, as a further basis for believing UST and the Terra ecosystem was stable,” the complaint said. “But LFG was just another means of deceiving the public,” given that LFG’s independence was a farce; it was controlled by Kwon and Jump, and used to keep assets away from Terraform creditors.

Jump and LFG tried to restore UST’s value after the next depeg in 2022, but this time their efforts made things worse for the Terraform “ecosystem,” leading to a massive collapse. Kwon and Terraform were charged with securities fraud, Terraform declared bankruptcy, and Kwon entered a guilty plea for conspiring to commit wire fraud, securities fraud, and commodities fraud. But “Jump and its executives have not been held accountable for their leading role in the collapse of Terraform or been required to return their ill-gotten gains,” the complaint lamented, noting that Jump concealed its real relationship with Terraform throughout.

Jump allegedly acquired billions of dollars unjustly, by entering into “increasingly extortionate” agreements with Terraform whereby Jump could buy Luna on the cheap for its market-making services, and to maintain the peg. The apparent market strength of UST and Luna concealed major misrepresentations and manipulations, designed to convince investors that the algorithm worked, and thus these tokens were a sound investment.

The complaint seeks relief for the Jump defendants’ contribution to Kwon and Terraform’s violation of Exchange Act Rule 10b-5, aiding and abetting breach of fiduciary duty, fraudulent transfers in violation of federal and Illinois law, unjust enrichment, violations of Securities Act Section 15 and Exchange Act Sections 9, 10(b), 20(a), and Rule 10b-5, market manipulation under the Commodity Exchange Act, violation of Illinois Consumer Fraud Act, and fraudulent misrepresentation. Many of these claims are intended for the benefit of individual victims who assigned their claims to the plaintiff’s wind down trust, the assets of which are currently insufficient to compensate for the victims’ losses.

The case is No. 1:25-cv-15414.

Attorneys: Michael F. Williams (Kirkland & Ellis LLP) for Todd R. Snyder.

Companies: Jump Trading, LLC

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