Galaxy Digital Agrees to Pay $200 Million to Settle Case Involving Secret LUNA Sales

The case involves the company promoting the cryptocurrency LUNA while secretly selling its holdings. The company generated significant profits while keeping information about its sales from public knowledge.

Galaxy Digital will pay a $200 million settlement to the New York Attorney General’s Office to resolve a case that arose when the company was selling LUNA tokens while publicly touting them.

The company generated massive profits by selling the tokens at a discount and then disclosing the sales to no one.

"This case uncovers a troubling picture of how an institution isallegedly engaging in deception at the expense of investors toenrich itself during the 2021 crypto market boom," the New YorkAttorney General said of the matter.

"My investigation uncovered that Galaxy purported to be a supporterof LUNA while simultaneously engaging in a substantial sellingprogram to liquidate a significant portion of its token holdings—amove that contradicts the optimism and confidence in LUNA whichGalaxy purported to hold to the investing public."

LUNA was a cryptocurrency that supported the TerraUSD (UST)stablecoin through a stable mechanism. The UST stablecoin wascreated by Terraform Labs, and it used LUNA to maintain its valueover the stablecoin.

During the 2021 crypto market boom, LUNA saw rapid pricegains, and its supporters—who called themselves “lunatics”—hadfull faith in the coin’s success.

As the CEO of Galaxy Digital, Michael Novogratz was a vocalsupporter of LUNA, and he touted the coin to his clients. During hissupport for LUNA, he said that he would get a tattoo when LUNAhitherto went above the $100 price point.

After this achievement, he shared a photo of his new tattoo—a wolfhowling at the moon—on social media.

But while Novogratz was touting LUNA and engaging in promotionactivities for the coin, Galaxy Digital was engaging in secrettransactions that involved selling millions of the tokens. Theseinvestors were completely in the dark about the sales until thewhole matter came to light as a major problem.

"My office investigates any institution that engages in unlawfulactivity in the cryptocurrency market," the New York AttorneyGeneral said. "Those who engage in deception will be held accountablefor their actions."

The investigation uncovered that Galaxy participated in and profitedfrom LUNA’s price growth by selling a substantial portion of theissued tokens. These sales weren't disclosed to the public, and theAttorney General began legal action due to the company’s lack ofdisclosure.

According to the investigation, Terraform Labs secured an investmentfrom a prominent U.S. institutional investor to push LUNA. The dealbetween Galaxy Digital saw it purchase 18.5 million tokens at a 30%discounted price.

From this purchase in December 2020, Galaxy sold a vast portion ofthe issued tokens while continuing to tout LUNA. By March 2022, thecompany had already sold about 14.5 million tokens and profitedgreatly from the move.

The company’s actions saw it escape the financial losses thatordinary investors faced due to its investments. Ultimately, Galaxysold most of its crypto investments as the crypto market crashed.

"My office will continue to vigilantly monitor the cryptocurrencymarket for any illegal activity and take swift action to protectinvestors and ensure fairness in the financial system," the New YorkAttorney General concluded.

The company will pay the settlement in three annual installments,with the first installment of $40 million needing to be paid within two weeks.

As part of the agreement, the company agreed to two conditions inaddition to the monetary sum. It will introduce measures to preventconflicts of interest and have experts check token deals whileestablishing clear promotional transparency.

Galaxy Digital agreed to settle the case and accept these terms despite never making an admission of liability.

This settlement comes as regulators are making a broader attempt toregulate the crypto industry. Recently, the SEC settled with Ripplefor a $50 million to resolve a case that spanned several years.

The crypto market is now facing increasing legal scrutiny from theauthorities, who are stepping up their efforts to combat fraud andbuild transparent systems. The Galaxy Digital case is another exampleof this regulatory enforcement of corporate responsibility.

Galaxy Digital will disclose its complete annual financial reportpublicly soon. As new regulations emerge in the crypto industry,investors are closely observing their influence on the digital assetmarket structure.