Mar 13, 2023
US Prosecutors Are Digging Into Group Chats on Terra Bailout
(Bloomberg) -- US prosecutors are scrutinizing chat-group conversations among prominent trading firms including Jump Trading Group and Jane Street Group about a potential bailout of the TerraUSD stablecoin project.
Manhattan federal prosecutors are looking into conversations on Telegram among employees at Jump, Jane Street and the now-bankrupt FTX affiliate Alameda Research last May, and whether possible market manipulation was involved, according to a person familiar with the matter who didn’t want to be identified discussing an ongoing examination.
No one has been accused of wrongdoing as part of the scrutiny of the chats, and inquiries don’t necessarily mean that charges will be brought.
The bailout of TerraUSD never took place. The collapse of the stablecoin and its sister token, Luna, left the two essentially worthless and set off a chain reaction of high-profile bankruptcies that included hedge fund Three Arrows Capital, Voyager Digital Ltd. and FTX, the crypto exchange founded by Sam Bankman-Fried.
The FTX debtors group, which includes Alameda as an affiliate, and representatives of Jane Street and Jump Trading either declined to comment or did not respond to emailed messages. The US Attorney’s Office for the Southern District of New York declined to comment.
Federal prosecutors there have been leading a criminal investigation into Terraform Labs Pte, the company behind the Terra stablecoin project, and the sprawling probe into FTX and Alameda. Last month, the US Securities and Exchange Commission accused Terraform and co-founder Do Kwon of orchestrating a fraud that erased at least $40 billion of market value.
Terraform declined to comment, and Kwon didn’t immediately respond to an emailed request for comment.
Jump Crypto, a division of Jump Trading, got caught up in the TerraUSD fallout as a backer of the project since 2019. In February 2022, Jump Crypto and Three Arrows Capital co-led a $1 billion fundraising effort for Luna Foundation Guard, the nonprofit managing the Luna and TerraUSD tokens, in a private token sale intended to shore up confidence in the stablecoin.
Alameda is at the center of the government’s fraud case against Bankman-Fried, who’s accused of diverting billions of dollars of FTX customer funds to trade through Alameda and to cover personal expenses. Money from Alameda was also allegedly used to fund political donations from FTX executives, according to court filings. Bankman-Fried has denied any wrongdoing.
The New York Times reported in December that federal prosecutors were investigating whether Bankman-Fried and Alameda manipulated the market for TerraUSD and Luna. In a statement, he told the Times he was “not aware of any market manipulation and certainly never intended to engage in market manipulation.”
Jane Street, known for its dominance in markets such as exchange-traded funds and corporate bonds, has been executing crypto trades since 2017.
A number of Jane Street alumni joined FTX and affiliate Alameda before their collapses. Bankman-Fried worked at the Manhattan-based trading firm before leaving to start Alameda in 2017. Caroline Ellison, Alameda’s former CEO, followed a year later. Former FTX US President Brett Harrison also previously worked at Jane Street.
--With assistance from Lydia Beyoud.
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