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US billionaire Mike Novogratz’s cryptocurrency group Galaxy Digital will pay $200mn to settle an investigation by New York regulators into alleged manipulation of the token whose failure kicked off the 2022 crypto market collapse.
In a filing, the New York attorney-general said that, from 2020, Galaxy had bought and actively promoted luna, a token linked to the stablecoin TerraUSD, while also selling and failing to disclose its plans to sell.
The penalty for Galaxy, one of the world’s largest crypto financial services groups, comes as the US Securities and Exchange Commission scales back investigations into many of the biggest names in the digital assets market.
The SEC has ended or halted more than a dozen cases, including those against Coinbase, Consensys and Binance, after President Donald Trump signalled more crypto-friendly oversight following his inauguration in January.
TerraUSD’s sudden failure in 2022 led to a $40bn loss in market value and left its investors with heavy losses. Its collapse rocked the crypto market, triggering a series of other corporate failures that year, which culminated in the implosion of Sam Bankman-Fried’s FTX exchange.
Last year, TerraUSD’s founder Do Kwon was extradited to the US to face criminal charges including securities, commodities and wire fraud. US market regulators also found him liable for fraud last year in a civil case.
Regulators alleged Kwon approached Galaxy in 2020 after his efforts to boost the price of luna failed. Galaxy bought 18mn tokens at $0.22 each, a near 30 per cent discount to the prevailing price.
Shortly afterwards, Novogratz, a former partner at Goldman Sachs and senior executive at Fortress Investments, began posting positively about luna and TerraUSD on social media.
In March 2021, Novogratz also vowed to get a luna tattoo if its price hit $100 per token, when the market price of luna was $18. After the price passed $100, Novogratz made good on his promise.
“But while Novogratz posted pictures of his tattoo and expressed his luna bullishness to the public, Galaxy sold millions of tokens into the market at many multiples of its initial cost without disclosing that it was selling,” the legal filing said.
It estimated that Galaxy had sold 1.3mn luna tokens, netting it more than $100mn, in the week following the social media post of the tattoo.
The regulator alleged Galaxy had profited by hundreds of millions of dollars from its promotions and sales. “Before the crash, Galaxy had already exited nearly all of its luna position,” it said.
Galaxy did not admit nor deny the New York attorney-general’s findings, the filing said.
“Do Kwon and Terraform, the creators of luna, deceived us and many other prominent institutional investors,” Novogratz said in a statement. “Galaxy has co-operated fully with regulators . . . We only recently became aware that the NY Attorney General was going forward with this matter, which led to settlement discussions that culminated with the outcome today.”
Separately, on Friday, Galaxy said it had made net income of $365mn last year as it benefited from the surging prices of cryptocurrencies such as bitcoin and ether.
The group also said net losses for the year to March 27 were between $275mn and $325mn after the positive momentum behind cryptocurrency prices following Trump’s election victory faded.
Bitcoin has fallen 14 per cent in the past two months, while ether is down 45 per cent over the same period.
