As crypto-related litigation continues to mature, the focus has shifted beyond the threshold question of whether digital assets constitute securities. Increasingly, private plaintiffs are pursuing claims that resemble traditional securities litigation including allegations involving disclosure failures, market misconduct, and investor losses. At the same time, the Clarity Act, legislation that would have established a statutory framework for digital asset regulation and clarified the respective roles of the SEC and CFTC, failed to advance through congress. Yet digital assets continue to move further into the financial mainstream, with reports that major U.S. banks are exploring a joint stablecoin initiative.
Against that backdrop, a recent decision in the long-running Jump securities class action arising from Terraform Labs (Terraform) collapse underscores the evolving nature of crypto-related litigation. In a September 2, 2026, opinion, the Northern District of California largely denied motions to dismiss, allowing core securities fraud and market manipulation claims to proceed. Beyond its high-profile factual backdrop, the ruling highlights how crypto litigation is increasingly being analyzed through familiar securities law concepts rather than focusing solely on whether a particular digital asset qualifies as a security.
As discussed below, the decision may offer useful insights for D&O underwriters evaluating the evolving nature of crypto-related litigation risk as digital assets become more integrated into the broader financial system.
Terraform Collapse
By way of background, the implosion of Terraform became one of the defining crises of the crypto industry. Terraform’s flagship product was UST, an algorithmic stablecoin designed to maintain a one-to-one value with the U.S. dollar through an algorithmic relationship with its companion token, LUNA. In May 2021, UST briefly fell below its intended one-dollar value before recovering.
The SEC’s later enforcement action against Terraform Labs and related proceedings alleged that the recovery was aided by undisclosed purchases of UST by a trading firm. When UST again lost its dollar peg in May 2022, no similar intervention occurred. The stablecoin entered a rapid death spiral, erasing more than $40 billion in market value and causing the collapse of Terraform’s platform. Terraform founder Do Kwon later admitted that he failed to disclose a trading firm’s role in restoring UST’s peg following the May 2021 de-pegging event.
The Jump Litigation
Jump Trading, a Chicago-based proprietary trading and market-making firm, allegedly played a significant role in Terraform’s operations and in efforts to restore UST’s dollar peg following the May 2021 de-pegging event. In June 2022, following the Terraform collapse, lead plaintiffs Michael Tobias and Nick Patterson, on behalf of a proposed class of investors, filed the securities case against Jump Trading, related parties and certain individuals (collectively Jump). The operative Fourth Amended Complaint, was filed on October 31, 2025, and alleges that when UST lost its dollar peg in May 2021, Terraform’s stabilization mechanism failed and Jump entered into a secret arrangement with Kwon to purchase large quantities of UST to restore the peg.
On September 2, 2026, the Northern District of California denied motions to dismiss filed by Jump. The court concluded that plaintiffs had plausibly alleged that Jump participated in a secret arrangement with Terraform founder Do Kwon to purchase substantial quantities of UST during the May 2021 de-pegging event, thereby helping restore the stablecoin’s dollar peg after Terraform’s algorithm allegedly failed. The court further held that plaintiffs adequately pleaded claims based on alleged omissions concerning Jump’s role in the re-pegging effort, as well as market manipulation claims premised on allegations that Jump purchased UST at above-market prices to artificially support the stablecoin’s value.
The court also permitted claims involving alleged misstatements and omissions, market manipulation, and certain control person liability theories to move forward. Significantly, the court reaffirmed its earlier conclusion that UST could be treated as a security, notwithstanding regulatory developments addressing reserve-backed stablecoins, which the court found did not affect its analysis of UST’s status.
Discussion
The Jump ruling arrives at a consequential moment for the crypto industry, following the Senate’s September 15, 2026, vote rejecting a procedural motion to advance the Digital Asset Market Clarity Act (Clarity Act). Without a comprehensive legislative framework, courts and federal regulators are likely to play an increasingly important role in defining the rules governing digital assets, making decisions like the one in Jump particularly significant for industry participants and their insurers.
Against that backdrop, the Jump litigation also reflects a broader trend in which private securities suits increasingly target participants across the crypto ecosystem beyond the token issuers themselves. More generally, the case illustrates how crypto-related litigation is increasingly resembling traditional securities litigation.
For D&O underwriters, the decision in the Jump litigation is noteworthy because the court permitted key disclosure and market manipulation claims to proceed against a participant in the Terraform platform that was not itself the issuer of the underlying asset. The surviving claims highlight how litigation exposure may arise from a company’s involvement with a digital asset venture. The allegations also suggest that underwriters may place greater emphasis on disclosures and oversight when evaluating crypto-related risks.
The ruling also highlights the D&O risks associated with alleged disclosure failures. The surviving allegations focus on claims that defendants failed to disclose the earlier failure of Terraform’s stabilization mechanism while continuing to promote the stability of the platform. In that respect, the case resembles traditional securities litigation involving alleged omissions about operational weaknesses, product risks, or internal controls.
The timing of the decision is particularly noteworthy given reports that several large U.S. banks are exploring stablecoin initiatives of their own. If stablecoin products become more widely adopted by regulated financial institutions, D&O underwriters may increasingly confront risks resembling those traditionally associated with banking, payments, and securities activities.
The case also illustrates the importance of parallel proceedings. The complaint against Jump draws heavily on evidence developed through SEC investigations, settlements, criminal cases, and related litigation. As in many traditional securities matters, regulatory investigations can become the foundation for significant follow-on civil litigation.
Taken together, the court’s decision provides another indication that crypto-related litigation is continuing to converge with traditional securities litigation. For D&O underwriters, the key takeaway may be that digital asset risks increasingly should be evaluated through familiar securities-law concepts, particularly disclosure practices, governance, and regulatory scrutiny.
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