Galaxy Digital, a crypto investment firm founded by Michael Novogratz, has agreed to a $200 million settlement with the New York Attorney General’s office over allegations it promoted the algorithmic cryptocurrency LUNA while quietly selling millions of tokens at a profit.
Terraform Labs created a stablecoin called TerraUSD (UST) that kept its peg with the U.S. dollar through an automated buying and selling program with another coin, LUNA. The project’s value surged, with LUNA’s price rising quickly in 2022. The Terra ecosystem then faced a severe crisis when the UST stablecoin lost its peg to the US dollar. This resulted in a massive sell-off of UST, which led to a drastic decline in the price of LUNA, ultimately resulting in the collapse of the Terra ecosystem.
Galaxy Digital and the Crime
The New York Attorney General’s Office claims Galaxy Digital bought 18.5 million LUNA tokens at a discount and sold most of them in tranches, making over $100 million by March 2022. By the time LUNA collapsed in May 2022, Galaxy had already exited almost its entire position.
The allegation highlighted that Michael Novogratz, founder and CEO of Galaxy Digital Capital Management, did much to promote LUNA. It holds that Galaxy played an essential role in generating interest in LUNA through its marketing strategies.
However, while publicly expressing confidence in the token’s potential, Galaxy Digital reportedly sold millions of it at a higher price than its initial purchase cost without disclosing that it was selling. Galaxy Digital was also accused of failing to disclose its significant holdings and transactions in LUNA while promoting the token to the public.
Galaxy Digital and the Consequence
Galaxy Digital will pay $200 million over three years as part of the settlement agreement, starting with an initial payment of $40 million due in two weeks. Additionally, the firm has pledged to establish strong policies to prevent conflicts of interest, including thorough legal analyses of token investments and careful reviews of promotional statements to enhance transparency and accountability in its operations.
Like Galaxy Digital, other crypto exchanges and some of their employees have faced allegations of using their influence to boost their pockets. For example, a recent report confirmed that a Binance Wallet staff member has been suspended owing to allegations of insider trading. Freddie Ng realized a profit of $113,000 and an unrealized profit of $200,000 through trading with UUU tokens on the BNB Chain. Binance has emphasized its dedication to maintaining the integrity of its platform and ensuring that all users have a fair and transparent trading experience.
