The CFTC is probing Jump Crypto, previously one of the sector’s biggest players

Leo Schwartz

<p>The Commodity Futures Trading Commission is investigating Chicago-based trading firm Jump’s involvement in crypto, including inquiries into its trading and investment activity, according to a person familiar with the matter.</p><div class="paywall-selector"></div><div class="paywall">



<p>The probe, which is not evidence of wrongdoing, comes after a turbulent three years for Jump. The company is known for its expertise in algorithmic trading and, more recently, as one of the most active market makers and investors in the crypto industry before being implicated in a series of hacks and collapses. Jump has since scaled back its crypto efforts, including <a href="https://www.bloomberg.com/news/articles/2023-11-17/jump-spins-off-wormhole-project-shrinking-its-crypto-business?sref=2jPYL79S">spinning off</a> two of its high-profile projects and <a href="https://fortune.com/crypto/2024/01/10/jump-crypto-bitcoin-etf-kanav-kariya-blackrock-trading-jane-street/">opting out</a> of the spot Bitcoin ETF race.</p>



<p>Representatives for the CFTC and Jump declined to comment.</p>



<h2 class="wp-block-heading">Trading woes</h2>



<p>Jump has been known for years as one of the top players in the secretive world of high-frequency trading. In September 2021, it burst into the headlines with the <a href="https://jumpcrypto.com/writing/introducing-jump-crypto/">public announcement</a> of its crypto division, Jump Crypto, even though the firm had quietly been active in the space for several years. Jump named Kanav Kariya, a former intern then in his mid-twenties, as the president of the team, catapulting him into one of the most high-profile roles in the industry.</p>



<p>Jump played a key role in the nascent sector, serving as a top market maker across exchanges, often working with crypto projects to provide liquidity for their newly launched tokens. The firm also became one of the top venture investors in the space, establishing an incubation and engineering arm that helped develop leading projects, including <a href="https://fortune.com/crypto/2023/11/29/wormhole-raises-225-million-2-5-billion-valuation-jump-crypto-split/">Wormhole</a>, Pyth, and Firedancer.</p>



<p>Cracks soon began to emerge in Jump’s prodigious operation, however, including <a href="https://www.theverge.com/2022/2/3/22916111/wormhole-hack-github-error-325-million-theft-ethereum-solana">the $325 million hack of Wormhole</a>, a decentralized finance platform envisioned as a bridge between different blockchains. Jump quickly plugged the hole, illustrating the depth of its balance sheet. After FTX’s collapse in late 2022, it was soon revealed that Jump served as a top market maker on the exchange, <a href="https://www.coindesk.com/business/2023/10/03/jump-trading-lost-almost-300m-in-ftxs-collapse-michael-lewis-says-in-going-infinite/">losing</a> nearly $300 million, according to Michael Lewis’s book <em>Going Infinite. </em>&nbsp;&nbsp;</p>



<p>Jump again became embroiled in controversy during the SEC’s February 2023 <a href="https://www.sec.gov/news/press-release/2023-32">lawsuit</a> against Terraform Labs and its founder, Do Kwon, who created the failed TerraUSD stablecoin. In its complaint, the SEC alleged that a U.S. trading firm had secretly propped up Terra’s peg in a near collapse in 2021. News reports—and subsequent <a href="https://www.wsj.com/articles/jump-trading-did-secret-deal-to-prop-up-terrausd-stablecoin-sec-says-11335951">filings</a>—<a href="https://www.coindesk.com/business/2023/02/17/jump-crypto-is-unnamed-firm-that-made-128b-from-do-kwons-doomed-terra-ecosystem-sources/">outed</a> the firm as Jump. The SEC accused Terraform and Kwon of fraud after they publicly claimed the peg had been naturally restored, but did not file charges against Jump. After a trial this spring, which included testimony from a former Jump employee who served as a <a href="https://www.wsj.com/livecoverage/stock-market-today-dow-jones-11-30-2023/card/whistleblower-from-jump-trading-helped-sec-build-case-against-do-kwon-lawyerw-says-SQIMmNPwHXnsjR3PmbHh">whistleblower</a> for the SEC, a jury <a href="https://www.bloomberg.com/news/articles/2024-04-05/do-kwon-and-terraform-labs-found-liable-for-fraud-in-sec-trial?sref=2jPYL79S">sided</a> with the agency in April. </p>



<p>In March 2023, the Justice Department <a href="https://www.coindesk.com/policy/2023/03/23/do-kwon-now-faces-criminal-fraud-charges/">filed</a> a criminal case against Kwon. Like the earlier SEC lawsuit, the complaint mentioned Jump as a “U.S.-based proprietary trading firm” that helped maintain Terra&#8217;s peg but, again, did not allege any wrongdoing or file any charges against the firm. A lawyer for Kwon did not respond to a request for comment.&nbsp;</p>



<p>The CFTC’s investigation into Jump’s crypto business reflects the latest probe by a federal agency, although it could not be learned whether the agency is considering any charges against the firm. And while the SEC oversees securities, much of Jump’s activity in the derivatives space, from crypto products to traditional commodities, falls under the CFTC’s jurisdiction. Speaking at the Milken Conference in May, CFTC Chair Rostin Behnam <a href="https://cryptonews.com/news/cftc-chairman-says-expect-regulators-to-crack-down-on-more-crypto-firms.htm">said</a> that cryptocurrency firms can expect to see “another cycle of enforcement actions.” </p>



<p>Regulatory agencies routinely engage in fact-finding around companies falling under their jurisdiction. In March, <em>Fortune</em> <a href="https://fortune.com/crypto/2024/03/20/sec-gary-gensler-ethereum-security-commodity-crypto-foundation/">reported</a> that the SEC had sent subpoenas to crypto firms regarding their dealings with the Ethereum Foundation, though no charges have yet been filed.</p></div>

After taking an active role in the blockchain sector, Jump has since pulled back on its crypto efforts.

The CFTC is probing Jump Crypto

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