Terraform Labs ties LUNA and UST collapse to Ken Griffin’s Citadel

Terraform Labs (TFL) has filed in court a motion to compel Citadel Securities to disclose documents related to its trading activity in May 2022.

In early that month algorithmic stablecoin TerraUSD (UST) lost its peg to the dollar, which caused a crash in the token LUNA used to issue it. As a result, traders and investors lost about $40 billion.

TFL, which is behind the Terra ecosystem, argues that the decline in assets was not the result of algorithmic instability despite accusations SEC.

“The motion states that, instead, the applicant asserts that the market was destabilized due to coordinated, deliberate efforts by certain external participants to short UST and push the price away from the dollar,” the motion says.

The filing cites publicly available evidence that suggests the founder and head of Citadel, Ken Griffin, planned to orchestrate a dump of the stablecoin.

In the motion, there is a quote from Remi Tetot, head of research at Global Macro Investor. Allegedly after a lunch with Griffin, the trader wrote that they “are going to resort to Soros’ strategy for the damn LUNA and UST.”

TFL also recalled Jacob Canfield’s May 10, 2022 tweet in which he described Citadel’s alleged UST shorting operations. The investment firm at the time vehemently denied these claims, including in comments to Forbes.

Rumor is citadel is the culprit. pic.twitter.com/91F0jGnl5k

— Jacob Canfield (@JacobCanfield) May 10, 2022

As one piece of evidence of Citadel’s involvement in the collapse, TFL pointed to examples of Griffin’s use of shorts in some of his most profitable trades. This included profiting from the 1987 stock market crash when he was in his second year of college.

“There’s nothing surprising about that. Citadel, with roughly $61 billion in invested capital at its disposal, is exactly the kind of organization that has the funding, resources and the know-how to take colossal bets and even attempt to move markets intentionally,” said TFL.

The company asked the Southern District of Florida court to compel Citadel to disclose information on trading operations, strategies, and wallet interactions concerning native Terra tokens and Terra financial instruments.

TFL maintains that the documents are crucial to its defense against the SEC civil lawsuit. The regulator has brought charges against the company and its CEO Do Kwon regarding orchestrating multi-billion-dollar securities fraud.

In the event of a denial, the motion asked to transfer it to the Southern District of New York, where the SEC case is being heard.

In March 2023, prosecutors in the same court filed charges against Kwon on eight counts. Among the latest: conspiracy to commit fraud and market manipulation, securities fraud, and investor deception.

In July, the lawyers for the former head of TFL explained the UST collapse as a “coordinated short attack” involving FTX. They also sought information from the bankrupt exchange as part of the defense in the SEC lawsuit.