Jump Trading Accused of Pump-and-Dump Scheme

Video game developer FractureLabs initiated legal proceedings against crypto market maker Jump Trading on 16 October, alleging "fraud and deceit" related to the manipulation of the DIO token's price.

This token plays a crucial role in FractureLabs' online game, Decimated.

The lawsuit represents one of the more prominent legal confrontations in the industry in recent weeks, highlighting ongoing concerns about market integrity in the crypto space.

DIO Token Plummeted After Boost

The complaint reveals that in 2021, FractureLabs aimed to fund its operations through an initial coin offering (ICO) of the DIO token on what is now known as HTX, previously Huobi.

To facilitate this, FractureLabs enlisted Jump Trading as the market maker for the DIO token, loaning 10 million DIO tokens to one of Jump's subsidiaries.

Additionally, FractureLabs transferred 6 million DIO tokens to Huobi for sale during the ICO.

As the offering commenced, Huobi engaged online influencers to promote the DIO token, resulting in a price surge to a peak of $0.98, elevating the borrowed tokens' value to $9.8 million.

However, the situation took a downturn when Jump allegedly began to "systematically" liquidate its DIO holdings, exerting selling pressure that caused the token's price to plummet to approximately $0.005.

This drastic decline allowed Jump to repurchase the tokens for about $53,000 before returning them to FractureLabs and terminating their market-making agreement.

Although FractureLabs did not include HTX in the lawsuit, it mentioned that the exchange refused to return $1.5 million worth of USDT deposited as liquidity.

This legal action echoes previous market manipulation accusations against Jump Trading.

Notably, the US Securities and Exchange Commission (SEC) asserted in its February 2023 lawsuit against Terraform Labs that Jump played a significant role in the collapse of the UST stablecoin.

While Jump is not a defendant in that case, the SEC noted that the firm allegedly assisted Terraform Labs in restoring UST's peg when it first lost parity with the US dollar in May 2021.

Furthermore, in June, the US Commodity Futures Trading Commission (CFTC) reportedly launched an investigation into Jump's activities in the crypto space, although this inquiry does not imply any wrongdoing by the market maker.

HTX Emphasized Commitment to Operating Within Legal Frameworks

FractureLabs’ lawsuit further alleges that Jump Trading covertly aimed to exploit the initial public offering of DIO as a vehicle for a "pump and dump" scheme, purportedly in collusion with the HTX exchange.

According to the complaint, Jump assured FractureLabs that it would stabilise the DIO token's price within specific parameters set by Huobi for the listing.

However, FractureLabs contends that Jump's actions led to price fluctuations that exceeded these agreed-upon limits, prompting HTX to withhold a significant portion of a $1.5 million deposit made by Fracture Labs in Tether's USDT stablecoin.

In response to inquiries, HTX stated:

“As this matter is now subject to ongoing litigation, and HTX is not named as a defendant, we are unable to comment further at this time.”

As of the latest update, the DIO token was trading at $0.01407, reflecting a year-to-date increase of 171% and an 11.36% rise in the past 24 hours, according to CoinMarketCap.