Galaxy Digital, a major digital asset manager, is facing potential new delays in its Nasdaq price plan due to a class action lawsuit in Canada linked to the failed Terra/Luna crypto ecosystem.
The proposed class action, filed in December in Ontario Superior Court, seeks approximately $2 billion CAD in damages, alleging that Galaxy failed to comply with reporting requirements for its holdings in Luna and that CEO Mike Novogratz made misrepresentations about the company’s exposure to cryptocurrency prior to its collapse in May 2022.
Summary
The link between Galaxy Digital and the failed Terra/Luna crypto ecosystem
Galaxy Digital has expressed its intention to fight the allegations and believes that the allegations are baseless.Â
However, if the lawsuit is certified as a class action, it could potentially lead to delays in Galaxy’s plan to be listed on the Nasdaq and attract the attention of regulatory bodies such as the US Securities and Exchange Commission (SEC).
Class certification would require Galaxy to disclose the lawsuit to the market, potentially affecting its reputation and investor sentiment.
The company may also have to create a litigation reserve to account for potential losses from the lawsuit.
Considering Galaxy’s financial position, satisfying a potential $2 billion judgment could be challenging and may require the company to raise new capital or take out a loan.
The timing of the certification of the class action could work in Galaxy’s favor if the SEC decides to approve the Nasdaq price before the certification is finalized. However, the SEC is likely to review the lawsuit, especially if it concerns internal controls and reporting.
Galaxy’s complex business, which includes digital asset management, cryptocurrency mining and trading, could also face difficulties in passing regulatory scrutiny, even without the complications of the lawsuit.
The company’s move from the Cayman Islands to Delaware indicates its intent for legitimacy, but it may still face questions about its business practices.
Despite potential obstacles in the United States, Galaxy has expanded its focus and operations internationally, partnering with German asset manager DWS to develop exchange-traded products for digital assets in Europe.
Galaxy intends to continue to grow outside the United States by capitalizing on the global demand for digital assets.
The legal action against Galaxy
The class action lawsuit alleges that Galaxy failed to disclose the specifics and risks associated with its investment in Luna, which contributed to the cryptocurrency’s price collapse.
The plaintiff also claims that the company described stablecoins such as Terra as safe investments, a representation that may have influenced shareholders to buy more Galaxy shares.
The outcome of the lawsuit will have significant implications for Galaxy Digital’s future, including its plans to be listed on the Nasdaq and its overall reputation in the digital asset space.Â
The case highlights the importance of transparency and proper disclosure for companies operating in the cryptocurrency industry, which faces increasing regulatory scrutiny globally.
Galaxy Digital’s business model: a closer look at the company
Galaxy Digital is a diversified financial services company specializing in the areas of digital assets and blockchain technology.
Founded by Mike Novogratz, a well-known investor and former hedge fund manager, Galaxy Digital aims to bridge the gap between the traditional financial world and the emerging world of cryptocurrencies and blockchain.
The company’s business model revolves around four main segments:
Asset management: Galaxy Digital operates as an asset management company, providing investment services and advice to institutional clients and high net worth individuals who wish to gain exposure to the digital asset market. The company manages several investment funds that focus on cryptocurrencies, blockchain projects, and other digital assets.
Main trading and investments: Galaxy Digital is active in trading various cryptocurrencies and digital assets on several exchanges. The company engages in proprietary trading, market-making, and arbitrage strategies to capitalize on price discrepancies and market opportunities.
Investment Banking: Galaxy Digital offers investment banking services to blockchain-based startups and projects. This includes assisting these companies in raising capital through initial coin offerings (ICOs), security token offerings (STOs) or traditional fundraising methods. The firm also assists in mergers, acquisitions, and other corporate finance activities in the digital asset sector.
Venture capital and principal investments: Galaxy Digital makes direct investments in promising blockchain projects and startups. The company seeks to identify innovative projects with long-term growth potential and provides them with capital and strategic support to accelerate their development.
Looking past the Terra/Luna crypto issues: diversification at Galaxy Digital
Galaxy Digital’s diversified business model allows it to participate in various aspects of the digital asset ecosystem. The company aims to be a one-stop shop for institutions and individuals looking to access the growing cryptocurrency and blockchain markets.Â
Offering a range of services, Galaxy Digital aims to meet the diverse needs of clients and their risk appetite in the rapidly evolving and dynamic crypto space.
In addition to its core business segments, Galaxy Digital is actively involved in promoting blockchain adoption and education. The company frequently engages in research, market analysis, and thought leadership initiatives to advance the understanding of blockchain technology and its potential impact on various industries.
Over the years, Galaxy Digital has established itself as a major player in the cryptocurrency and blockchain industry. Its founder, Mike Novogratz, is a strong advocate for mainstream adoption of cryptocurrencies and blockchain technology.
As the digital asset market continues to mature, Galaxy Digital’s role as a financial services provider in this space remains crucial for investors and institutions seeking exposure to this emerging asset class.
