The Office of the Attorney General of the State of New York (OAG) recently imposed a hefty fine of $200 million on Galaxy Digital Holdings Ltd after investigating the company for its alleged market manipulation of the cryptocurrency Luna. The investigation, conducted under the Martin Act and New York Executive Law Section 63(12), revealed that Galaxy engaged in deceptive trading practices by promoting Luna while secretly selling off its holdings.
Galaxy Digital, under the leadership of CEO Michael Novogratz, reportedly started acquiring Luna tokens in 2020 directly from Terraform Labs at a significant discount, with a hidden agenda to drive interest in the token. Public endorsements by Novogratz and other Galaxy representatives led to a surge in Luna’s price, reaching a peak of $119.18 in April 2022. However, behind the scenes, Galaxy was systematically offloading its holdings, reaping substantial profits without disclosing these actions to the public.
The collapse of Luna in May 2022 resulted in over $40 billion in market value being wiped out, leaving retail investors in a state of devastation. The OAG’s investigation concluded that Galaxy’s actions constituted fraud, deception, and market manipulation, thereby violating state securities laws.
The findings of the investigation shed light on a carefully orchestrated scheme by Galaxy Digital to inflate Luna’s value for its financial gains. The timeline of events revealed how Galaxy acquired Luna tokens at a discounted rate, promoted the token through false endorsements, and aggressively sold its holdings while fueling hype among retail investors. This manipulation tactic ultimately led to significant profits for Galaxy at the expense of unsuspecting investors.
As a consequence of its actions, Galaxy Digital faced a $200 million fine and must now implement compliance measures to prevent similar misconduct in the future. The case has also prompted regulatory bodies like the SEC to intensify oversight of crypto firms, particularly concerning transparency in token sales and promotional practices. Additionally, the scandal has raised questions about classifying cryptocurrencies as securities, although efforts are being made to prevent this classification.
Galaxy Digital’s reputation has taken a hit, with investors questioning the firm’s ethical standards. CEO Michael Novogratz, who was once a vocal advocate for Luna, has faced criticism for misleading the public while profiting from the scheme. Although he has not been personally charged, further investigations could lead to additional penalties or restrictions on his involvement in financial markets.
The scandal serves as a lesson for greater transparency and accountability for Key Opinion Leaders (KOLs) in the crypto space. Moving forward, the consequences of Galaxy Digital’s actions highlight the importance of ethical business practices and regulatory compliance in the cryptocurrency industry.