NY AG files $200 million settlement with Galaxy Digital over LUNA

Driving the news: The New York AG's office has posted a filing outlining a $200 million settlement reached with Galaxy Digital and its related companies, one of the most notable cryptocurrency investment firms in the country.

• The settlement accuses Galaxy with violating the Martin Act and the Executive Law, for promoting an asset without disclosing its interest in the asset.

Catch up quick: Terraform Labs created a stablecoin called terra usd (UST), that kept its peg with the U.S. dollar through an automated buying and selling program with another coin, LUNA.

• The value of the project surged through the crypto boom, with LUNA's price rising quickly amidst the general buzz of 2021.
• Fans of the coin called themselves "lunatics." It was created by Do Kwon, who has been held in Montenegro for months, awaiting extradition for trial in the U.S. where he faces charges of fraud and securities violations.
• Michael Novogratz, the CEO of Galaxy Digital, became one of the chief boosters of LUNA.

Zoom in: The settlement notes that as LUNA surged in value, Novogratz promised on social media to get a tattoo if it broke $100.

• When it did, he tweeted a picture of the tattoo, a wolf braying at the moon.
• However, the settlement alleges that, "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 AG alleges that Novogratz and Galaxy participated in a number of other efforts that helped drive up the price of LUNA while it continued to sell the asset.

The big picture: The settlement alleges that Terraform Labs sought out Galaxy because it needed a noteworthy American investor to promote it here.

• It claims Galaxy got a deal to buy 18.5 million tokens, to be released in monthly tranches over the course of year, at a 30% discount to the spot price at the time, for $4 million.
• Over the year, Galaxy sold most of the tokens in many of the tranches, even as it promoted LUNA, the AG alleges.
• By March 2022, it only had a few thousand LUNA left, having made over $100 million, but it did not disclose these sales while promoting the token to the public, according to the filing.

As the market crashed, the settlement alleges, Galaxy had already exited almost its entire position, at a massive profit.

• "Ultimately, Galaxy helped a little-known token increase its market price from $0.31 in October 2020 to $119.18 in April 2022, while profiting in the hundreds of millions of dollars," the AG alleges.

The other side: Galaxy, as part of the agreement, neither admitted nor denied the AG's findings outlined in the Assurance of Discontinuance filing.

• Neither the New York AG or Galaxy have replied to a request for comment from Axios.
• Galaxy Digital will report its full year results on Friday.

The settlement — which was signed and notarized on March 24 by authorities for the state and the company — stipulates that the $200 million will be paid out over a period of three years, with the first $40 million due in about two weeks.

• In addition to the monetary relief, Galaxy has agreed to commit to a variety of policies to prevent conflicts of interest in various ways, including in any promotional statements it might make or in any investments by staff, according to the filing.
• It also requires legal analysis of all token deals.

Zoom out: Late last year, the SEC settled with a subsidiary of Jump Crypto, a market making firm, for $123 million, over similar issues related to LUNA.

• It settled for $4.7 billion with the creators of the scheme, Terraform Labs.