Jump Trading Faces $4 Billion Cryptocurrency Lawsuit Over Terraform Labs Collapse

The bankruptcy administrator of Terraform Labs has initiated legal proceedings against Jump Trading, the high-speed trading firm, accusing it of profiting substantially from—and actively contributing to—the catastrophic $40 billion cryptocurrency collapse that devastated the ecosystem. This emerging cryptocurrency lawsuit marks one of the most significant legal actions in digital assets litigation history, targeting not only the trading company but also its executives, William DiSomma and Kanav Kareiya.

When a Cryptocurrency Stablecoin Lost Its Footing: The Event Behind the Lawsuit

To understand why this cryptocurrency lawsuit emerged, one must revisit May 2022, when Terraform Labs experienced its dramatic downfall. The company’s algorithmic stablecoin, TerraUSD (UST), suddenly lost its dollar peg—a foundational vulnerability in its design. Within days, this triggered a cascade of liquidations. Luna, its sister token, plummeted toward zero as the system unraveled. The implosion wiped out approximately $40 billion in value and sent shockwaves through the entire cryptocurrency industry. Hundreds of thousands of retail investors saw their life savings evaporate.

The fallout extended beyond Terra. The market turmoil created a domino effect that eventually precipitated the collapse of Sam Bankman-Fried’s FTX exchange later that November, a sequence that exposed systemic vulnerabilities across the cryptocurrency sector.

The Legal Action: What This Cryptocurrency Lawsuit Alleges

Todd Snyder, the court-appointed administrator unwinding Terraform Labs’ remaining operations, is now pursuing $4 billion in damages through this cryptocurrency lawsuit. According to filings in the Illinois district court, the allegations paint a picture of calculated misconduct: Jump Trading, prosecutors contend, maintained a secret arrangement to artificially prop up UST immediately before its collapse, then strategically exited its positions to capture massive profits as the market imploded.

Snyder’s statement on the litigation was unambiguous: “Jump Trading actively exploited the Terraform Labs ecosystem through manipulation, concealment, and self-dealing that enriched Jump while financially devastating thousands of unsuspecting investors. This action is a necessary step to hold Jump Trading accountable for illegal conduct that directly caused the largest crypto collapse in history.”

Per prior SEC filings cited by the Wall Street Journal, Jump Trading accumulated approximately $1 billion in gains from Luna sales alone—profits allegedly reaped while the broader cryptocurrency ecosystem burned.

Accountability and Sentencing: The Broader Reckoning

In August 2025, Terraform Labs founder Do Kwon pleaded guilty to two criminal counts of wire fraud. Just weeks later, in December 2025, he received a 15-year federal prison sentence—a landmark ruling underscoring the severity with which regulators and courts now treat major cryptocurrency fraud cases.

Earlier, in January 2024, Terraform Labs had filed for bankruptcy protection under Chapter 11. Months after that filing, the company agreed to pay approximately $4.5 billion to the U.S. Securities and Exchange Commission to resolve civil securities fraud allegations—one of the largest cryptocurrency-related settlements in history.

What This Cryptocurrency Lawsuit Means for the Industry

This multibillion-dollar cryptocurrency lawsuit serves as a watershed moment for digital asset governance. It represents the first major legal test of accountability not just for founders, but for sophisticated trading firms that allegedly exploited cryptocurrency ecosystem vulnerabilities for profit. The proceedings signal that regulators and courts are now willing to pursue complex, high-stakes litigation targeting every layer of the crypto ecosystem—from platform operators to market participants.

The Terraform Labs case, spanning from its May 2022 collapse through the current cryptocurrency lawsuit against Jump Trading, has become emblematic of the cryptocurrency industry’s reckoning with fraud, manipulation, and systemic risk. Whether the lawsuit ultimately succeeds, it is already reshaping expectations around transparency, market conduct, and corporate accountability within digital assets.