In a new legal battle, game developer Fracture Labs has accused Jump Trading of engaging in a “pump and dump” scheme involving its gaming token, DIO. The lawsuit, filed on October 15 in an Illinois District Court, claims that Jump Trading exploited the token to make millions in profits, leaving Fracture Labs and its investors in financial turmoil.
The Alleged Scheme: From $0.005 to $9.8 Million
Fracture Labs’ lawsuit centers around an agreement it made with Jump Trading in 2021. As part of the deal, Jump Trading, acting as a market maker, was loaned 10 million DIO tokens, then valued at around $500,000. In addition to this loan, Fracture Labs transferred another 6 million DIO tokens, worth approximately $300,000, to the crypto exchange Huobi (now HTX) to facilitate the token’s launch.
The partnership initially appeared promising. After DIO’s launch, the token’s value surged to $0.98, briefly valuing the loaned tokens at $9.8 million. Fracture Labs claims that this spike was largely due to HTX soliciting influencers to promote the token and boost its market presence.
Also read: Ireland Moves to Draft New Crypto Regulations Ahead of EU Crackdown on Money Laundering
The ‘Mass Liquidation’
However, the lawsuit alleges that Jump Trading quickly liquidated its entire DIO holdings following this price surge. The sale triggered a massive price drop, sending the token down to just $0.005—a catastrophic 99% plunge. Jump is accused of then buying back the tokens at the much lower price of roughly $53,000, returning them to Fracture Labs, and abruptly ending the partnership.
Fracture Labs argues that this rapid sell-off, or “dump,” effectively devalued its token and caused substantial harm to its business, making it nearly impossible to attract further investment or interest from the broader market. According to the suit:
The result of Defendant Jump’s fraudulent scheme is that DIO was dramatically devalued, making it harder for Fracture Labs to attract investors and interest.
Breach of Agreement with HTX
In another aspect of the agreement, Fracture Labs claims it transferred 1.5 million USDT into an HTX account to guarantee it wouldn’t manipulate the market during the first 180 days of DIO’s trading. The game developer now alleges that HTX refused to refund most of this deposit due to the extreme price swings caused by Jump Trading’s actions.
As the price of DIO plummeted far below agreed parameters, HTX allegedly withheld the majority of Fracture Labs’ Tether deposit. This created further financial damage for the game developer, compounding the losses caused by the DIO token’s crash.
Claims of Fraud and Breach of Duty
Fracture Labs is accusing Jump Trading of multiple offenses, including:
- Fraud and deceit
- Civil conspiracy to commit fraud
- Breach of contract
- Breach of fiduciary duty
The lawsuit seeks damages, disgorgement of profits, and a jury trial to hold Jump Trading accountable for the alleged market manipulation.
Interestingly, HTX, despite its involvement in the events leading up to the price collapse, was not named as a defendantin the lawsuit.
What’s Next?
The accusations against Jump Trading come at a time when the cryptocurrency industry faces increasing scrutiny over market manipulation and fraudulent practices. This lawsuit not only sheds light on the potential risks of working with large market makers in the crypto space but also highlights the legal complexities that can arise when such partnerships turn sour.
As Fracture Labs moves forward with its case, the outcome could set a significant precedent for crypto-related lawsuits, especially concerning the duties and responsibilities of market makers in token listings and trades.
Neither Jump Trading nor HTX has publicly commented on the lawsuit yet, but the industry will be watching closely as the case unfolds.
