Galaxy Digital Settles With The NYAG Over Its Involvement With The Luna Token
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Galaxy Digital managed to reach a settlement with the New York Attorney General’s (NYAG) office over claims that the firm promoted the now-collapsed Luna token without disclosing its own interest in it. As part of the settlement, the company will pay $200 million.
It all started when the NYAG posted a filing that accused Galaxy Digital of violating the Martin Act and the Executive Law regarding its alleged role in the collapse of Luna, a crypto native to the Terra blockchain.
The company allegedly purchased around 18.5 million Luna tokens at a 30% discount, and after that, it started promoting it and selling it without disclosing the situation to investors, which is obligated to do under the disclosure rules.
Luna Token’s Collapse And Its Effect On The Crypto Industry
Luna itself is a token created by Terraform Labs, and its purpose was to help the company’s TerraUSD stablecoin stay pegged to the US dollar. It was used for automated buying and selling which helped keep TerraUSD’s price stable.
But, come 2022, a major holder of the TerraUSD stablecoin made a major sell-off in the middle of the crypto winter, when crypto prices were crashing after rising throughout 2021. This led to a major market-wide panic, prompting the minting of Luna tokens needed to buy back the stablecoin.
Due to the massive minting of Luna and a major boost to its supply, the token’s valuation dropped, starting a chain of events that eventually led to the crash of the entire blockchain. Eventually, the entire company behind the chain collapsed, with $40 million in damages. Terraform Labs and Do Kwon, its former CEO, actually managed to reach a $4.5 billion settlement with the US SEC over the incident.
But, at the time, the Terra blockchain’s implosion set off a series of events throughout the crypto industry which led to the failure of crypto hedge fund Three Arrows Capital. This, then, led to the collapse of Genesis Global Capital and FTX in the months that followed.
The whole series of events resulted in catastrophic losses that will be felt throughout the industry for years. But, going back to Galaxy Digital, given that it and its boss, Mike Novogratz publicly backed Luna, the company started selling while failing to disclose the depths of its involvement with the project.
