Fracture Labs Sues Jump Crypto Over Alleged Pump-and-Dump Scheme

Fracture Labs Sues Jump Crypto: What You Need to Know

Fracture Labs, the developer behind the Web3 game Decimated, has filed a lawsuit against Jump Crypto, claiming the market maker orchestrated a pump-and-dump scheme involving the game’s in-game currency, DIO. The lawsuit, submitted on October 15 in the U.S. District Court for the Northern District of Illinois, alleges that Jump Crypto collaborated with the crypto exchange Huobi, now rebranded as HTX, to freeze $1.4 million of Fracture Labs‘ funds and refused to return it.

Allegations Against Jump Crypto

Fracture Labs describes Decimated as a “post-apocalyptic survival game with elements of cyberpunk.” The game’s currency, DIO, currently has a market capitalization of around $10 million. Jump Crypto, the cryptocurrency division of Jump Trading Group, provides market-making services, invests in Web3 startups, and conducts blockchain research.

According to the complaint, Jump Crypto initially offered Fracture Labs consultation and market-making services in late 2021. After advising Fracture Labs to launch DIO on HTX instead of KuCoin, the developer agreed to loan 30 million DIO tokens to Jump’s subsidiary, J Digital. Additionally, Fracture Labs deposited $1.5 million in Tether (USDT) to an HTX-controlled account as a security deposit against market manipulation risks.

The agreement included specific pricing parameters for the first 180 days of trading, which if met, would allow Fracture Labs to reclaim the deposit. However, the complaint alleges that Jump Crypto engaged in a mass sell-off of borrowed DIO tokens, causing the price to plummet from $0.90 to $0.0054.

Market Manipulation Claims

Fracture asserts that Jump Crypto’s actions were not legitimate market-making but rather part of a fraudulent scheme designed to profit at the developer’s expense. The lawsuit claims that as a result of Jump’s trading activities, the DIO token was devalued, resulting in significant financial losses for Fracture Labs.

The lawsuit also emphasizes that Jump Crypto’s selling caused the token’s price to fluctuate beyond the agreed-upon parameters, leading HTX to impose penalties that significantly reduced Fracture Labs’ recoverable deposit to approximately $350,000. The remaining $1.38 million remains frozen by HTX, which has not returned it to Fracture Labs.

Impact on Fracture Labs

Stephen Arnold, founder of Fracture, expressed the severe impact of this situation on his team, stating that the loss of the deposit led to the layoffs of 30 staff members. Despite the setbacks, the team has released an alpha version of Decimated and continues to develop the game.

Arnold contends that Fracture Labs should not be held responsible for the token’s price fluctuations, questioning why they are penalized for market maker actions. How is this our fault? he asked rhetorically. Why are we being penalized for the money that we deposited in the account when it was the market makers who were responsible?

Cointelegraph reached out to Jump Crypto for comments but did not receive a response prior to publication. The allegations are currently unproven in court, and Jump Crypto is allowed time to respond. HTX stated its commitment to comply with laws and regulations but declined to comment further due to the ongoing litigation.

While suspicions of market manipulation by market makers have long circulated in the crypto community, tangible proof has been elusive. The recent indictment by U.S. authorities against individuals from various market-making firms marks a significant step, though it did not include accusations of Jump Crypto providing fake trading volume.

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