Galaxy Digital, the crypto investment firm helmed by billionaire Mike Novogratz, has reached a $200 million settlement with the New York Attorney General’s Office (NYAG) over allegations it misled investors during its involvement with the failed Terra (LUNA) project. The agreement, announced on March 28, is among the largest crypto-related regulatory settlements in U.S. history. It underscores the heightened scrutiny facing digital asset firms.
Discounted Tokens and Undisclosed Sales
The NYAG’s investigation revealed that Galaxy Digital had acquired more than 18.5 million LUNA tokens from Terraform Labs in 2020 at a discounted rate of $0.22 per token, nearly 30% below market value at the time. The firm later publicly promoted LUNA to investors, including Novogratz’s now-infamous tattoo celebrating the token. They continued promoting the token even as the company offloaded significant holdings during LUNA’s price surge. Galaxy reportedly reaped millions in profits while failing to disclose its intention to sell.
Amplifying False Claims Without Due Diligence
Central to the NYAG’s complaint was the accusation that Galaxy amplified misleading claims about Terra’s ecosystem. Notably, it asserted that South Korea’s Chai payments app was using Terra’s blockchain infrastructure. The claim has since been proven false. Galaxy did not conduct independent due diligence on these statements, despite using them to attract investor interest.
>>> Read more: Terraform Launches Claims Portal for Compensation
Settlement Terms and Compliance Measures
Under the terms of the agreement, Galaxy will pay $200 million over three years. An initial $40 million within 15 days, another $40 million after one year, and two subsequent payments of $60 million in the following two years. The firm neither admitted nor denied the allegations but agreed to enhance its compliance practices. These include conducting legal reviews of token transactions and enforcing stricter internal controls over employee investments.
Regulatory and Ethical Implications
The settlement reflects growing regulatory momentum to rein in deceptive practices in crypto promotion and trading. It also exposes the ethical divide between industry insiders and everyday investors. While Galaxy cashed out at the top, retail holders suffered massive losses during Terra’s $40 billion collapse in May 2022.
Looking Ahead: Galaxy’s Strategic Pivot
Novogratz, who once called LUNA “one of the most exciting projects in crypto,” has since described the experience as “humbling.” Following the settlement, Galaxy emphasized its intent to “move forward” and refocus on institutional infrastructure and AI investments, including a new 15-year agreement with cloud computing firm CoreWeave.
>>> Read more: CoreWeave IPO: The Future of AI Cloud Computing
Still, the message from regulators is clear: the era of unchecked hype and undisclosed interests in the crypto markets is ending. The Galaxy case may set a precedent for future enforcement, as authorities push for transparency, accountability, and investor protection in an industry long defined by volatility and opacity.
Readers’ frequently asked questions
What was Terra (LUNA), and why did it collapse so dramatically?
Terra (LUNA) was the native token of the Terra blockchain, which also supported a stablecoin called TerraUSD (UST). The system was designed so that LUNA would help maintain the peg of UST to the U.S. dollar through a mechanism of algorithmic supply and demand. However, in May 2022, UST lost its peg and triggered a death spiral. The system issued massive amounts of LUNA to try to restore the peg, which instead hyperinflated the token and rendered it nearly worthless. The collapse wiped out around $40 billion in market value almost overnight and led to significant investor losses globally. The crash also sparked broader regulatory scrutiny of algorithmic stablecoins and the firms that promoted them.
Why was Galaxy Digital allowed to settle without admitting wrongdoing?
In many U.S. regulatory settlements, particularly those involving financial firms like Galaxy Digital, it’s common for the defendant to resolve a case without admitting or denying the allegations. This is often part of a negotiated deal that enables regulators to secure penalties and policy changes without engaging in prolonged litigation. In Galaxy Digital’s case, the New York Attorney General prioritized stopping the firm from misleading investors in the future and recovering funds, rather than proving fraud in court. However, even without an admission of guilt, the settlement imposes enforceable compliance measures. Hence, it sends a strong signal to other firms operating in the crypto space.
Can investors expect to get any money back from this $200 million settlement?
As of now, there is no public information detailing how the $200 million settlement will be allocated, specifically regarding restitution to affected investors. Typically in such cases, a portion of the payment is allocated to investor restitution while the rest may go to state coffers or regulatory enforcement funds. The exact allocation often depends on the terms set by the Attorney General’s office. If the NYAG establishes a formal claims process for affected investors, it would be publicly announced. However, given the scale of losses during the LUNA collapse and the number of parties involved, individual investors may not recover a substantial amount, if anything. The primary impact of the settlement is regulatory, not compensatory.
What Is In It For You? Action Items You Might Want to Consider
Reevaluate projects with heavy insider promotion
If a token is being aggressively endorsed by high-profile insiders or influencers, especially without clear disclosures, consider it a red flag. Galaxy’s promotion of LUNA while secretly offloading its holdings is a textbook case of how public hype can mask private exits. Always ask: Who stands to gain the most from this narrative?
Dig deeper than surface-level claims
Don’t take ecosystem claims at face value—especially when they come from project teams or their backers. The false narrative that the Chai app used Terra’s blockchain went largely unchallenged in public forums. As a trader, get comfortable verifying tech integrations, partnerships, and on-chain activity yourself—or follow trusted analysts who do.
Price action can mislead when transparency is lacking
LUNA’s meteoric rise was driven by hype, but the collapse revealed just how little investors knew about the risks. Use this case as a reminder to weigh tokenomics, sell pressure, and team incentives—not just momentum or price charts. When in doubt, zoom out: sustainable assets rarely need marketing stunts to justify their value.
