Galaxy Digital Faces Legal Action Over Terra Promotion Under New York's Martin Act

According to Cointelegraph, the New York State Attorney General (NAYG) has initiated legal proceedings against Galaxy Digital, citing its promotional activities related to the now-defunct cryptocurrency Terra (LUNA). This move has been criticized by SkyBridge Capital founder Anthony Scaramucci, who described it as an unfair use of the legal system. Scaramucci expressed his concerns in a March 28 post on X, labeling the action as 'LAWFARE' due to the Martin Act, a powerful New York law that he believes is prone to misuse. The Martin Act is recognized as one of the most stringent anti-fraud and securities laws in the United States, granting prosecutors the ability to pursue financial fraud cases without the necessity of proving intent. The NAYG has accused Galaxy Digital of violating this act through its alleged promotion of Terra, leading to a $200 million settlement agreement. Documents filed by the NAYG on March 24 reveal that Galaxy Digital acquired 18.5 million LUNA tokens at a 30% discount in October 2020, subsequently promoting and selling them without adhering to disclosure regulations. Anthony Scaramucci defended Galaxy CEO Michael Novogratz, stating that Novogratz was under the impression that his statements about Luna were accurate, as he had been misled by Terraform Labs and its former CEO, Do Kwon. Meanwhile, Keith Grossman, president of enterprise at MoonPay, admitted to being unfamiliar with the Martin Act, resorting to AI chatbot ChatGPT for clarification. Grossman described the act as broad and essentially embodying the concept of lawfare, expressing sympathy for Novogratz's predicament. The legal filing alleges that Galaxy Digital played a role in boosting the market price of LUNA from $0.31 in October 2020 to $119.18 in April 2022, profiting significantly in the process. Asset manager and investor Anthony Pompliano, while not well-versed in the lawsuit's specifics, vouched for Novogratz's character, describing him as a 'good man' committed to philanthropy. The collapse of Terra remains one of the most notorious failures in the cryptocurrency sector. In March 2024, SEC attorney Devon Staren characterized Terra as a 'house of cards' during proceedings in the US District Court for the Southern District of New York, highlighting its downfall for investors in 2022.