Jump Trading Accused of ‘Pump and Dump’ in Game Developer’s Suit

Video-game developer FractureLabs filed a lawsuit against Jump Trading, accusing one of the cryptocurrency industry’s biggest market makers of “fraud and deceit” by manipulating the price of a token used in an online game.

According to the suit, FractureLabs planned to raise funds through an initial offering of the DIO token on the Huobi exchange in 2021. The company said it retained Jump as a market maker for DIO, a token used within its Decimated online game that also trades in the crypto market. It loaned 10 million of the tokens to a Jump subsidiary as part of the agreement, while separately sending 6 million DIO tokens to Huobi, now known as HTX, to sell in the offering.

Huobi solicited online influencers to promote the DIO token, sending its price to a high of $0.98, meaning Jump’s borrowed tokens were then worth $9.8 million, the complaint said.

“Jump then systematically liquidated its DIO holdings, generating millions of dollars in revenue for itself” as the sales caused the price of DIO to drop to about half a cent, according to the complaint. Jump then re-purchased the heavily discounted tokens, worth about $53,000 at that point, and returned them to FractureLabs before canceling its agreement to be the token’s market maker, the complaint alleged. “Jump concealed its true intent to use the initial offering of DIO as an opportunity to ‘pump and dump’ the token” along with HTX, the complaint said.

Jump had also told FractureLabs that it would keep DIO’s price within certain parameters that Huobi required as part of its agreement to list the token on its exchange, the complaint said. But Jump’s sale of DIO caused the token’s price to fall outside those parameters, and as a result HTX refused to refund the majority of a deposit of $1.5 million worth of Tether’s USDT stablecoin that FractureLabs had paid as part of the agreement, the complaint said.

“These allegations are factually flawed and completely baseless,” a spokesperson for Jump said in a statement. “Jump intends to vigorously defend itself.”

HTX wasn’t named as a defendant in this case.

“HTX is committed to operating in full compliance with all applicable laws and regulations,” the exchange said when asked for comment. “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.”

The case was filed on Tuesday in US federal court in Chicago. FractureLabs also filed arbitration against Huobi in Singapore and globally “and they didn’t respond,” according to Chief Executive Officer Stephen Arnold.

Jump, which is also a major trader in traditional markets, has a mixed history in crypto. At the end of June, Kanav Kariya, the head of Jump Trading’s crypto unit, said he is leaving the company. His exit followed a difficult two years in which Jump was at the center of one of crypto’s largest collapses, the failed TerraUSD stablecoin project. It was among trading firms questioned by US prosecutors in a probe of the token’s 2022 collapse.

Top photo: The offices of Jump Trading in Chicago. Photographer: Daniel Acker/Bloomberg.