Galaxy Digital agrees to pay $200M to settle NYAG investigation into its promotion of Terra (LUNA)

Galaxy Digital acquired 18.5 million LUNA tokens at a 30% discount, then promoted them before selling them without abiding by disclosure rules.

New York Attorney General Letitia James announced that her office has reached a settlement agreement with crypto investment firm Galaxy Digital and its CEO Michael Novogratz for allegedly spreading false claims about cryptocurrency startup Terra (LUNA) and failing to disclose material facts related to an investment in its tokens.

According to the filing, Galaxy Digital acquired 18.5 million LUNA tokens at a 30% discount and later sold them without disclosing the discount or the firm’s role in promoting the tokens to increase demand.

The filing mentions that the firm’s employees made false claims about the usage of a South Korean payments app, Chai, in an attempt to boost LUNA. The statement said that the app was built on the Terra blockchain, while it is actually used by a separate blockchain.

This claim was also included in a press release sent to Bloomberg highlighting that the app “hosts over 2 million users and generates $1.2 billion in annualized transaction volume.”

The statement adds that Novogratz participated in an interview with Bloomberg in March 2022, where he discussed the app and claimed that it was used by 2 million people in South Korea.

As part of the settlement agreement, Galaxy will pay $200 million in monetary relief over three years: $40 million within 15 days, another $40 million within one year, and two additional payments of $60 million due within the second and third years, respectively.

The filing also notes that the firm will be banned from investing in any digital asset security offerings for a period of three years.

Earlier this month, New York State Attorney General Letitia James announced that her office has recovered over $875 million from a hedge fund that made false statements about a distressed debt portfolio.

James’s office had filed a lawsuit against Manhattan-based hedge fund, Pivotal Law, and its founder and managing partner, David DeMuro, in December 2021.

The lawsuit, which was filed in New York Supreme Court, accused Pivotal of making false and misleading statements to investors about the assets andliabilities of a distressed debt portfolio that it was managing.

Pivotal’s misstatements to investors began in 2019, when it told investors that it had no outstanding liabilities and had assets of over $250 million. However, Pivotal had actually incurred significant liabilities and had assets of less than $100 million.

The filing notes that Pivotal’s misstatements were part of a broader scheme to defraud investors. For example, Pivotal’s executives allegedly used investor funds to pay for personal expenses and to make lavish investments in a cryptocurrency that subsequently lost nearly all of its value.

The filing also notes that Pivotal failed to disclose material facts about its investment strategy and risk management practices.

In March 2024, the hedge fund agreed to pay $875 million to settle the lawsuit. The settlement will be paid over a period of three years and will include restitution to defrauded investors.

“After mismanaging a distressed debt portfolio and losing nearly all of the investment capital entrusted to Pivotal, DeMuro and Pivotal tried to deceive investors with a series of lies,” said Attorney General James. “We are holding Pivotal accountable for its actions and ensuring that investors are made whole.”

The case began when investigators at Attorney General James’s office, who are experienced in handling cases of financial fraud, uncovered evidence of Pivotal’s misconduct. The investigation revealed that Pivotal had been making false and misleading statements to investors for years.

The filing states that Pivotal’s misstatements began after it experienced significant losses due to making risky investments in cryptocurrency and other assets.

In an attempt to recover the losses, Pivotal’s executives decided to misrepresent the value of the distressed debt portfolio to investors. The filing adds that the hedge fund also failed to disclose material facts about its investment strategy and risk management practices.

The case is still ongoing and more details may be released in the coming months.