Galaxy Digital Agrees To $200 Million Settlement Over LUNA Promotion

(MENAFN- The Arabian Post)

Galaxy Digital, a prominent cryptocurrency investment firm led by Michael Novogratz, has agreed to a $200 million settlement with the New York Attorney General's office. The settlement addresses allegations that the firm promoted the cryptocurrency LUNA without adequately disclosing its financial interests, while simultaneously selling substantial holdings of the token at a profit prior to its collapse.

The Terra ecosystem, which included the algorithmic stablecoin TerraUSD and its sister token LUNA, experienced a catastrophic collapse in May 2022. At its peak, LUNA boasted a market capitalization of approximately $40 billion, ranking among the top cryptocurrencies globally. The collapse of UST and LUNA resulted in significant financial losses for investors and raised concerns about the stability of algorithmic stablecoins.

According to the settlement details, Galaxy Digital actively promoted LUNA to investors while concurrently liquidating its own holdings without proper disclosure of these transactions. This dual action allegedly misled investors regarding the firm's financial interests and the stability of the Terra ecosystem. The New York Attorney General's office emphasized that such practices undermine market integrity and investor trust.

The $200 million settlement is structured to be paid over a three-year period. Notably, while Galaxy Digital has agreed to the financial terms, the firm has neither admitted nor denied the allegations put forth by the Attorney General's office.

The collapse of Terra's tokens had far-reaching implications beyond individual investor losses. The event triggered a broader market downturn, leading to increased scrutiny of the cryptocurrency industry by regulators worldwide. In the aftermath, several firms associated with Terra faced legal actions and financial penalties. For instance, Jump Trading Group agreed to a $123 million settlement with the U.S. Securities and Exchange Commission over allegations related to misleading investors about the stability of TerraUSD.

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Terraform Labs, the company behind the Terra blockchain, filed for bankruptcy in January 2024. Subsequently, the firm reached a $4.47 billion settlement with the SEC to address allegations of fraud related to the collapse of TerraUSD and LUNA. The bankruptcy proceedings are ongoing, with efforts focused on winding down operations and compensating affected stakeholders.

Do Kwon, co-founder of Terraform Labs, has also faced legal challenges. After being detained in Montenegro in March 2023, Kwon was extradited to the United States to face federal fraud charges related to the collapse of TerraUSD and LUNA. The charges include wire fraud, commodities fraud, securities fraud, and conspiracy.

The Terra incident has prompted regulators to intensify their oversight of the cryptocurrency industry, particularly concerning the promotion and stability of digital assets. The SEC and other regulatory bodies have been actively investigating and, in some cases, penalizing firms that fail to provide transparent disclosures to investors or engage in misleading promotional activities.

Galaxy Digital's settlement underscores the importance of transparency and ethical practices within the cryptocurrency sector. As digital assets continue to gain mainstream adoption, regulatory authorities are likely to maintain rigorous enforcement to protect investors and ensure market integrity. Firms operating in this space are increasingly expected to adhere to stringent disclosure requirements and ethical standards to foster trust and stability in the evolving financial landscape.

The repercussions of the Terra collapse serve as a cautionary tale for both investors and firms within the cryptocurrency industry. Investors are urged to conduct thorough due diligence and remain cautious of high-yield investment opportunities that lack transparency. Simultaneously, firms are reminded of the critical need to maintain ethical standards and comply with regulatory requirements to sustain the industry's credibility and foster long-term growth.

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As the cryptocurrency market continues to evolve, the balance between innovation and regulation remains a focal point. The outcomes of legal actions, such as the settlement involving Galaxy Digital, highlight the ongoing efforts by authorities to establish a regulatory framework that protects investors while accommodating the dynamic nature of digital assets.

Arabian Post – Crypto News Network

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