Galaxy Digital faces $200M settlement over LUNA involvement

The New York Attorney General (AG) office has commenced an investigation on Galaxy Digital with a settlement of $200 million over its involvement in the LUNA cryptocurrency. The crypto crashed alongside Terra Blockchain powered by Terraform Labs and led to the erasure of over $40 billion in investor funds.

The crash of the Terra blockchain, whose native token, LUNA, powered the Terra USD, an algorithmic stablecoin, was arguably one of the largest reported shakeups in the crypto space in 2022, second only to FTX in terms of scale, volume and reach. 

Do Kwon, the founder of Terraform Labs, is currently awaiting extradition to the US to face fraud and securities violation charges. He was able to get Galaxy Digital on board the Luna train as he sought more market penetration in the West. 

Financial impact and legal consequences of Luna’s collapse persist

The prosecutor alleges that Galaxy Digital contributed to the growth of a little-known token, increasing its price from $0.31 in October 2020 to $119.18 in April 2022, while profiting in hundreds of millions of dollars. 

Luna, alongside most of what’s left of the Terra blockchain, collapsed in May 2022, leading to a series of events that erased over $40 billion of market value in just a few days, impacting investors across the world, including New York. 

Galaxy Digital had reportedly nearly exited all its Luna positions before the crash. 

So, the settlement stipulates that Galaxy Digital will pay $200 million over the course of three years, the first payment being $40 million due in roughly two weeks. In addition to the monetary penalty, Galaxy Digital is to commit itself to a series of policies to prevent future occurrences of a similar nature, such as conflicts of interest and issuing promotional statements. They are also mandated to carry out legal analyses of all tokens deals moving forward.

Galaxy Digital isn’t the only platform paying for its association with Terraform and Luna. A subsidiary of Jump Crypto settled with the SEC for $113 million, while the major culprit, Terraform, now bankrupt, was fined $4.7 billion for its fraudulent activities and regulatory violations.

Galaxy Digital’s role in the LUNA hype

According to the information contained in the AG’s assurance of discontinuance document, Galaxy Digital bought in turn 18.5 million Luna from Terraform in October 2020 at $0.22 per token, getting a nearly 30% discount to Luna’s then-market price of $0.31 and began pushing the coin actively. 

Michael Novogratz, Galaxy’s founder and chief executive officer, was reported to have said that his company, Galaxy Digital, helped to drive interest in Luna thanks to its marketing efforts. Part of these efforts included posting about Luna and Teraform Labs on its social media platform. This led to an increase in Luna’s price and trading volume. 

Another crumb that pointed to Galaxy’s involvement with Luna was the events that occurred on March 26, 2021, where Novogratz posted on social media that he would get a tattoo of LUNA if the price hit $100. At that time, the token was trading for $18. 

Roughly nine months later, on December 24, 2021, Luna hit $100.84, and in January of the following year, Novogratz shared a photo of his new tattoo, a wolf howling at the moon, tagging Do Kwon while calling himself a “lunatic,” a term used by holders of the LUNA token. 

Allegations against Galaxy Digital

However, according to findings by the New York AG, while Novogratz and his organization were blowing the LUNA trumpet, they were selling millions of the same token at prices higher than its initial cost at various intervals, and they never disclosed that they were selling. 

As part of their push for Terraform Labs and its blockchain, Galaxy Digital reportedly sent a press release to Bloomberg stating, “Terra now has the third highest number of transactions of all blockchains (after BTC and Ethereum) and is generating 13M USD in fees annually. Terra KRW today powers CHAI, one of the largest e-commerce wallets in Korea, which hosts over 2 million users and generates $1.2 billion in annualized transaction volume.”

However, according to the prosecutors, the information was false as CHAI was not powered by Terraform’s blockchain and its transactions were settled in Korean won as opposed to Terraform’s stablecoin TerraKWN. 

Galaxy Digital reportedly shared that release based on the information they got from Do Kwon and Terraform. However, they failed to verify the information. Bloomberg later published a story stating that Novogratz had invested in Terra. 

This announcement, which was also reported by leading crypto publications, caused the price of the Luna token to rise. A few days after this information, Galaxy Digital reportedly sold another batch of millions of Luna tokens without public disclosure.

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