Galaxy Digital to Pay $200 Million for Misleading LUNA Promotions

Galaxy Digital, a prominent crypto investment firm led by Michael Novogratz, has agreed to pay $200 million to settle allegations related to its promotion of the now-collapsed cryptocurrency Terra (LUNA). The settlement, announced by the New York Attorney General's office, stems from claims that Galaxy Digital acquired 18.5 million LUNA tokens at a 30% discount while promoting them to the public. The firm is accused of failing to disclose this information, thereby spreading false information and misleading investors.

The Attorney General's filing details that Galaxy Digital played a significant role in boosting the market price of LUNA from $0.31 in October 2020 to $119.18 in April 2022. During this period, the firm allegedly profited in the hundreds of millions of dollars. The settlement agreement stipulates that Galaxy Digital will pay $200 million in monetary relief over a three-year period. The payments are structured as follows: $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 Attorney General's filing also accuses Galaxy Digital and Novogratz of spreading false claims about Terra's usage. Specifically, the firm is alleged to have stated that the South Korean payments app Chai was built on the Terra blockchain, a claim that was not accurate. This false information was included in a press release that highlighted the app's user base and transaction volume. The release stated that the app "hosts over 2 million users and generates $1.2 billion in annualized transaction volume." However, these statements were based on representations by Terraform Labs and its founder Do Kwon, which Galaxy Digital failed to independently verify.

The collapse of Terra and its algorithmic stablecoin, TerraUSD (UST), in May 2022, was a significant event in the cryptocurrency market. The collapse occurred when a large holder sold a substantial amount of UST, triggering market panic and causing UST to deviate from its expected value. The mechanism designed to stabilize UST involved minting new LUNA tokens to buy back UST, which resulted in massive LUNA supply inflation and intense downward pressure on LUNA's price. This self-reinforcing spiral caused both assets to lose nearly all their value within hours, wiping out billions in market capitalization and triggering a broader cryptocurrency market downturn.

The settlement with Galaxy Digital underscores the regulatory scrutiny facing the cryptocurrency industry. The case highlights the importance of transparency and disclosure in promoting cryptocurrencies, as well as the potential consequences of spreading false information. The $200 million settlement serves as a reminder to other firms in the industry to adhere to regulatory standards and ensure the accuracy of their promotional materials.