Galaxy Digital Agrees to $200 Million Settlement Over LUNA 'Misrepresentations'

The New York Attorney General and Galaxy Digital have agreed to a settlement over the crypto firm’s handling of the collapsed Terra LUNA cryptocurrency, with the agreement requiring Galaxy to pay $200 million for alleged violations of the Martin Act and New York Executive Law. 

A 49-page filing from the Office of the Attorney General of New York (OAG) outlines the investigation and the Office’s conclusions, alleging that “Galaxy’s conduct, including its misrepresentations and omissions about LUNA while simultaneously selling LUNA and failing to disclose its then-present intent to sell, constituted violations” of the above laws.

“This was not an easy decision and one that we considered carefully. Settling this matter will help Galaxy move forward and minimize distractions so that we can focus on our mission of driving innovation and growth in digital assets and artificial intelligence infrastructure,” said Galaxy CEO Michael Novogratz, in a statement.

Novogratz’s firm initially purchased more than 18.5 million LUNA tokens for $0.22 per token, a 30% discount from the spot price in October 2020 as part of an agreement with Terraform Labs. 

The OAG’s findings indicate that a Galaxy memo sent on the same day of the agreement proposed that as part of the trade, “Galaxy would make the public more aware of the Terra ecosystem.”

Later public awareness, particularly from Novogratz, is central to the findings outlined by the OAG, which highlight his personal promotion of Terraform Labs’ LUNA token through posts on X (formerly Twitter), podcast interviews, and even via a tattoo that he promised to get if LUNA reached $100. 

“But while Novogratz posted pictures of his tattoo and expressed his LUNA bullishness to the public, Galaxy sold millions of tokens into the market at many multiples of its initial cost without disclosing that it was selling,” the filing reads.

Shortly after getting his tattoo, the OAG’s findings showed that Novogratz’ firm netted more than $100 million via LUNA token sales from January 5-13, 2022, despite the fact that he urged his social media followers to “keep the faith” as LUNA fell from its $100 mark.

The OAG findings note that the firm sold more LUNA tokens throughout January and February, leaving it with only “2,060 LUNA as of February 28, 2022.” 

In March 2022, Galaxy Digital Research noted a known risk in the LUNA token that could result in a “death spiral” for the first time. 

Two months later, that death spiral appeared. Terraform Labs’ algorithmic TerraUSD (UST) stablecoin lost its 1:1 peg to the U.S. Dollar and the LUNA token collapsed alongside, ultimately leading the formerly top 10 token to trade for less than 1 cent, greatly impacting cryptocurrency investors worldwide.

As part of the Assurance of Discontinuation filing, Galaxy did not admit to or deny the findings. In addition to the $200 million payment, which must be made over the next three years, Galaxy must also create and maintain policies and procedures regarding public statements on cryptocurrencies that it may have interest in. 

Earlier this year, Terraform Labs co-founder Do Kwon pleaded not guilty to U.S. criminal charges over the Terra ecosystem collapse.

Edited by Andrew Hayward