What we’ve learned from Terraform Labs’ unredacted Jane Street lawsuit
Liquidators overseeing Terraform Labs’ bankruptcy have unredacted the Jane Street Group lawsuit that accuses the firm of using a secret Telegram chat to profit from Terra’s $40 billion collapse.
Appointed administrator, Todd Snyder, filed the lawsuit last February in a Manhattan court.
It accuses Jane Street, its co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang of using insider information to front-run transactions and profit from Terraform Labs’ fallout.
Allegedly key to this was a Telegram group chat called “Bryce’s secret” set up by Pratt. The suit claims he used the group to relay information from various Terraform employees back to Jane Street.
At the time of filing, Jane Street claimed the suit was full of “baseless, opportunistic claims.”
‘Bryce’s Secret’: Terraform claims Jane Street behind $40B meltdown
It said, “This desperate suit is a transparent attempt to extract money when it’s well-established that the losses suffered by Terra (UST) and Luna ($LUNA) holders were the result of a multibillion-dollar fraud perpetrated by the management of Terraform Labs.”
The lawsuit was mostly redacted but now, many of these redactions have been removed. Protos has compared the documents to reveal what’s new.
The unredacted claims in Terraform Labs lawsuit
The first set of unredacted lines introduces the group chat “Bryce’s secret,” and notes that it was a secret message chain named after a former Terraform intern and then-current Jane Street systems developer.
It claims that the insider information allowed Jane Street to unwind hundreds of millions of dollars in potential exposure, “and then to short sell Terraform tokens to reap even more illicit profits.”
Unredacted lines claim Jane Street “made a killing.” The suit then claims that Jane Street, knowing it had used insider information, went on to delete all traces of the crypto wallet linking it to these trades.
Jane Street was allegedly ‘hungry for defi info’
We’re also now able to see the claim that Jane Street was “very hungry for…defi info,” and that it sold the entirety of its UST holdings. It then allegedly “took short positions in UST and Luna to profit from the crash it helped catalyze.”
Previously-redacted details about Pratt, Granieri, and Huang are then revealed. These note Granieri’s role in authorizing the alleged suspicious UST trades, and claim that he discussed the rescue of the Terraform ecosystem while learning material non-public information.
Pratt was allegedly involved in “acquiring and confirming information from Terraform and providing it to others at Jane Street.”
The suit also claims that Huang discussed decommissioning Jane Street’s wallet, was primarily responsible for executing relevant trades during UST’s 2022 depeg, and frequently received Pratt’s insider information.
Later unredacted lines claim that Pratt was encouraged by others at the firm to leverage his connections at Terraform.
Lawsuit says Pratt was allegedly ‘adding colour’
The newly-unredacted suit also claims that Jane Street staff discussed investing in Terraform and Luna Foundation Guard (LFG), and mulled over LFG’s $1 billion capital raise through an over-the-counter sale of $LUNA.
Employees — who remain redacted — asked how this was achieved, and if the deal had “a four-year lock and 24 participants, with an average price of $51/luna?”
The suit claims Huang was skeptical of the $51 price, and added Pratt to the discussion to “add some colour.” The suit also alleges that Pratt said, “Pricing around $51 sounds right according to my sources.”
It adds that Pratt heard the raise was supposed to be $2 billion originally, and that the deal was supposed to be at a 40% discount before $LUNA fell and various investors backed out.
Bryce’s secret is allegedly born
From here, unredacted lines claim that “Bryce’s secret” was made on February 22 with Pratt, Terraform Labs’ head of business development, and another unnamed Terraform employee.
In one discussion, the employee and Pratt allegedly discussed a potential investor in Terraform Labs with the firm’s head of business development.
The suit details that the two were initially coy about the investor, but eventually the unnamed employee revealed to the head of business development that it was “Jane Streeeeeeeet.”
This allegedly piqued the Terraform business head’s interest. The suit notes they asked Pratt “what are you guys looking to do, besides otc,” and “can u market make ust?”
Pratt then replies, “everything. Probably ya. If jump can legally do smtg we probs can too,” according to the suit.
The lawsuit claims these discussions were “the beginning of near-constant communications between Jane Street and Terraform between February and May 2022 that revealed material non-public information.”
Pratt allegedly used Terra contacts to create ‘terra explainer’
In another instance, the lawsuit notes that, as Jane Street and Terraform negotiated a $LUNA purchase deal, Pratt was tasked with drafting a “terra explainer” for Jane Street that would summarise its operations.
If Pratt was ever unsure about details, he would allegedly “ask [his] friends,” aka former Terraform Labs employees.
The suit also notes Pratt’s alleged insider knowledge was relied upon in March 2022 discussions about staking on Anchor. When the discussion shifts to shorting $LUNA, Huang allegedly halts the discussion so Pratt can share his input, where he then appears to obtain more non-public information.
In March again, the lawsuit claims Pratt told Huang that crypto firm Celsius wanted to invest between $1-2 billion into LFG, but “Terra is probably going to say no.”
Pratt goes on to say that he doesn’t really know what Celsius does, and that “terra is super confused too.”
Pratt allegedly sought insider info at wedding
The lawsuit notes that on April 1, Pratt told Huang and a redacted individual that “if we can still get in on [Luna Foundation Guard]… it’s looking better and better.”
He added, “I am hopefully going to a wedding later this month which basically every Terra exec will be at, including obviously Do. Maybe I can talk to them there and see if we can do something :).”
Pratt also allegedly helped Jane Street understand non-public numbers surrounding the UST/$LUNA mint-burn.
Jump Crypto profited from Terra Luna as investors lost billions
This allegedly involved Pratt leveraging his relationship with Terraform Labs’ head of research to confirm outdated sources.
Huang allegedly told Pratt, “I’m like kind of mad this isn’t just in their docs,” to which Pratt allegedly responded, “On the other hand shouldn’t you be slightly pleased that you have an informational advantage :’).”
Pratt also apparently shared with Huang in that same chat that, based on the info provided by the research head, “Jump makes an absolute killing off of MEV in Terra and that MEV in general should be very high priority for us.”
Lawsuit says Jane Street explored hirings to learn more about Terra
The lawsuit says Terraform’s head of research “was both providing and seeking information” and by March 2022, wanted Jane Street to hire him. One Jane Street employee allegedly wanted to hire him to learn more about Terraform Labs’ inner workings.
Further unredacted lines note that Pratt tried to quash concerns that the firm’s wallet, positioned as the sixth largest, was a “red flag.”
The suit alleges he said, “estimates I’ve heard from trusted sources put [hedge fund] Alameda’s Anchor deposits somewhere north of $1B.”
He then supposedly added, “Despite us being the 6th largest wallet, I think it’s very unlikely that we’re the 6th largest depositor.”
Jane Street allegedly made suspiciously timely UST sales
The next batch of unredacted lines detail Jane Street’s purchases of UST.
According to the suit, Jane Street bought 10,000 UST on February 11, then one month later, another 10 million UST on Binance.
Afterwards, between April 1 and April 11, Jane Street is noted to have bought over 190 million UST on Binance. Altogether, the lawsuit says it owned ~$200 million worth of UST.
The suit then claims that it staked its UST with Anchor and began to earn 20% interest.
From here, unredacted sections detail the run-up to Terraform’s UST depeg and Jane Street’s unstaking and selling of UST. The suit reveals how Jane Street carried out a test sale of $8 million worth of UST to test the peg’s stability in late April.
It then held onto the rest of its UST until May 7, the day Terraform withdrew 150 million UST from the Curve3 liquidity pool without public disclosure.
Jane Street exited its entire $192 million UST position that day.
An unredacted chart of Jane Street’s UST withdrawals.
The unredacted suit claims, “Jane Street leveraged its material nonpublic information about Terraform’s ecosystem to sell its UST at the most opportune moment.”
“By selling all of its UST in one day, all effectively at its peg value of $1, Jane Street avoided the catastrophic losses that other investors, including the individual victims, suffered when UST collapsed to virtually $0 just days later.”
Lawsuit says Jane Street traders were nervous
The unredacted sections then go on to explain how Jane Street began to short UST and $LUNA based on non-public information.
Pratt allegedly learnt through Terraform’s head of research that Jump Trading would help Terraform Labs restore its UST peg, which was, by May 9, trading below $0.80.
He allegedly learned this by asking, “Y jump not doing their shit.”
On May 9, Jane Street co-founder, Granieri, allegedly forwarded on non-public information to fellow Jane Street traders that he learned from Jump Trading’s founder Bill DiSomma and CIO Dave Olsen.
This included efforts from Jump Trading to help Terraform Labs, and Jump’s request to Jane Street to also help bail Terraform Labs out and restore its peg.
Jump Trading faces $4B lawsuit over Terraform Labs collapse
He supposedly learned that Jump Trading would only invest $100-200 million to help Terraform Labs, and alleged that it would need at least $2 billion, or $5 billion to be saved.
According to the lawsuit, Granieri said Jane Street would think about Jump’s request. Across that same day, and the next, the lawsuit claims Jane Street began shorting UST and $LUNA for millions.
Also alleged in the suit is that some Jane Street traders were concerned about trading on insider information. It added that one supposedly said he “understood that [material non-public information] didn’t really exist in crypto.”
According to one unredacted line, “Jane Street unwound its short positions, pocketing over $19 million of profits on the UST short positions and over $115 million of profits on the Luna short positions.”
It had also allegedly placed another cheap option bet on $LUNA that, if the UST depeg was ever restored, it would make Jane Street up to $180 billion by Huang’s estimates.
The suit then details that Terraform Labs’ head of research was eventually offered a role after the collapse of UST. It notes that he joined, but Jane Street staff were “unclear… whether he was also still working at Terraform at the time.”
Jane Street allegedly wanted to keep its ‘killer’ trades quiet
Redacted sections also show that Jane Street was praised by a group of skilled on-chain analytics experts in the weeks that followed for the “killing” it made on its trades.
Rather than revel in the praise, the lawsuit claims that Huang “expressed anxiety at having been caught.” He allegedly guessed that the firm’s admirers were “friends with exchanges and someone leaked them our wallets at some point.”
One unredacted section details how news of a wallet involved in the depeg began to spook Huang, and that he discussed “affirmatively stripping information that would connect them to this wallet.”
This was despite Jane Street’s name not being publicly linked yet.
The unredacted document goes on to claim, “While it never publicly touted its involvement in the scheme, Jane Street has also never denied that it reaped massive profits from the collapse of UST due to its sales based on insider information.”
Other previously-redacted sections of the document recount specific details around unjust enrichment, market manipulation, insider trading, and other securities violations.