In recent legal developments, the New York State Attorney General’s (NAYG) lawsuit against Galaxy Digital has sparked a heated debate within the cryptocurrency community. The suit revolves around Galaxy’s promotional activities related to the now-collapsed cryptocurrency Terra (LUNA), raising questions about regulatory practices and the consequences of financial promotion.
SkyBridge Capital founder Anthony Scaramucci has notably criticized the lawsuit, labeling it as “LAWFARE, pure and simple,” stemming from the Martin Act—a stringent New York law that enables prosecutors to pursue financial fraud cases without proving intent. In a statement shared on social media, Scaramucci emphasized the potential for abuse within such legal frameworks, stating, “The law has no need to prove intent, creating a low standard of proof that can open the door for abuse like this. It shouldn’t exist.”
The Martin Act, considered among the strictest anti-fraud and securities laws in the United States, allows for aggressive prosecution of financial misconduct. According to the NAYG, Galaxy Digital’s purported violation occurred due to its promotion of Terra, leading to a proposed settlement of $200 million. Legal documents indicate that Galaxy Digital acquired 18.5 million LUNA tokens at a significant discount in October 2020 and subsequently promoted these tokens by disregarding regulatory disclosure requirements.
Scaramucci further defended Galaxy CEO Michael Novogratz, asserting that Novogratz acted in good faith based on misleading information provided by Terraform Labs and its former CEO, Do Kwon. The implication here raises broader concerns about the responsibilities of financial actors and the ramifications of misinformation within the cryptocurrency space.
Keith Grossman, President of MoonPay’s enterprise division, also weighed in, revealing his unfamiliarity with the Martin Act before resorting to the use of AI to gain clarity. His remarks underline the complexity and obscurity surrounding such regulations, remarking, “It is so broad and essentially is the essence of lawfare.”
The lawsuit claims that Galaxy Digital’s promotion of LUNA significantly influenced its market value, with the price surging from $0.31 in October 2020 to $119.18 by April 2022, resulting in substantial profits for the firm. However, as evidenced by comments from various industry figures, skepticism remains regarding the motivations behind the lawsuit.
Investor Anthony Pompliano expressed his belief in Novogratz’s character, calling him a “good man” dedicated to philanthropy. This sentiment reflects a prevailing concern among industry stakeholders about the implications of litigation in a space characterized by rapid growth and inherent volatility.
As this legal battle unfolds, the cryptocurrency world watches closely, not only for the outcome of Galaxy Digital but also for the precedent it may set regarding regulatory practices and the fine line between promotion and investment fraud in an evolving market. The collapse of Terra remains one of the most infamous events in the crypto industry, serving as a cautionary tale of the risks inherent in unregulated financial ecosystems.
