- Galaxy Digital has agreed to a $200 million settlement with the New York Attorney General’s Office concerning its involvement with the collapsed cryptocurrency $LUNA
- The firm promoted and sold $LUNA without disclosing its intent to sell its holdings, leading to significant profits
- CEO Mike Novogratz publicly endorsed $LUNA, even unveiling a LUNA tattoo, while the company sold millions of tokens
Galaxy Digital and its affiliates have reached a $200 million settlement with the New York Attorney General’s Office (NYAG) over their promotion and sale of the cryptocurrency $LUNA without proper disclosures. The firm profited substantially by selling millions of $LUNA tokens while CEO Mike Novogratz publicly endorsed the asset during its extraordinary rise in 2021. This settlement aims to resolve the investigation into Galaxy’s involvement with $LUNA, with the NYAG not following federal agencies in dropping crypto cases.
$LUNA to the Moon
$LUNA was the native token of the Terra blockchain, developed by Terraform Labs and co-founded by Do Kwon. The project aimed to create a decentralized stablecoin ecosystem, primarily through its algorithmic stablecoin, TerraUSD (UST), which was designed to maintain a 1:1 peg with the US dollar via a mint-and-burn mechanism with $LUNA.
As demand for UST increased, $LUNA would be burned to mint more UST, and vice versa. This mechanism initially drove $LUNA’s price up significantly, making it one of the top cryptocurrencies by market cap in early 2022.
However, the system’s design proved fatally flawed. In May 2022, UST lost its peg during a sharp selloff, triggering a death spiral in which $LUNA was hyperinflated in an attempt to restore the peg. This effort failed catastrophically, wiping out tens of billions of dollars in value almost overnight. The collapse led to massive investor losses, triggered broader crypto market turmoil, and sparked investigations by regulators around the world.
Terraform Labs and Do Kwon became subjects of international scrutiny, with Kwon later being arrested in Montenegro while on the run.
Galaxy Tipped $LUNA for Greatness
In October 2020, Galaxy Digital purchased over 18.5 million $LUNA tokens from Terraform Labs at $0.22 each, nearly 30% below the market price of $0.31. Following this acquisition, CEO Mike Novogratz began promoting $LUNA, even unveiling a LUNA-themed tattoo in January 2022 after the token’s price surpassed $100. During this period, Galaxy sold millions of tokens at significantly higher prices without disclosing these sales to the public, resulting in profits exceeding $100 million.
The NYAG found that Galaxy’s actions violated disclosure regulations, as the firm promoted and sold $LUNA without informing investors of its intent to sell its holdings, claiming that this lack of transparency misled investors about the firm’s true position and intentions regarding $LUNA.
In response to the settlement, Novogratz stated, “Settling this matter will help Galaxy move forward and minimize distractions.” In the standard manner, Galaxy did not admit to any wrongdoing as part of the settlement, but we all know that that means.
