Ontario judge finds ample evidence that Galaxy Digital misled investors about collapsed cryptocurrencies

An Ontario judge is allowing a class-action lawsuit against Galaxy Digital Inc. GLXY-T and its founder, Mike Novogratz, to proceed after finding ample evidence that investors were misled about the risks associated with holding two popular cryptocurrencies, whose subsequent collapse ended up creating multibillion-dollar losses.

Mr. Novogratz, a former Goldman Sachs trader who markets Galaxy as the “Goldman Sachs of crypto,” was “a rather boisterous” promoter of Luna and TerraUSD, Justice Edward Morgan of the Ontario Superior Court of Justice wrote in an Aug. 27 decision.

The lawsuit alleges Galaxy and Mr. Novogratz aggressively encouraged investors to buy and hold Luna and TerraUSD without disclosing the relevant risks, or the fact that Galaxy had been acquiring Luna at a discount and was rapidly selling off its holdings as Luna’s price soared.

Both cryptocurrencies saw their value fall to zero over the course of a single week in May, 2022, wiping out roughly US$40-billion worth of investments.

Over that same period, Galaxy’s Toronto Stock Exchange-listed shares plummeted more than 40 per cent, erasing roughly $2-billion from the company’s market capitalization.

An initial statement of claim for a proposed class action was filed in late 2022. In order to move forward, a judge must certify that there is a reasonable possibility for the plaintiff to win a trial, which is a much higher bar than American law requires for class-action lawsuits.

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With the case having now cleared that hurdle, Galaxy can choose to appeal the certification ruling, negotiate a settlement or mount a trial defence.

“In the public’s and the market’s eyes, Novogratz was Galaxy and in 2021-2022 when the events at issue here transpired, Galaxy was Luna,” the ruling said. “Nowhere was this identification with Luna more graphically demonstrated than in Novogratz’s well publicized self-adornment with a Luna-themed tattoo.”

The ruling includes a photo of a social media post from Mr. Novogratz that depicts a tattoo on his shoulder of the word “Luna” alongside a wolf howling at a full moon. He captioned the photo “I’m officially a Lunatic!!!”

“Novogratz spoke about Luna without any regard to the truth or falsity of the statements being made. That is because explaining Luna to the investing public was not the goal of Novogratz’s communications; promoting it and inflating its price was the goal,” the ruling said.

Even while Mr. Novogratz was actively promoting Luna and TerraUSD, the ruling reveals Galaxy was internally unconvinced of its utility. In a text message dated Sept. 3, 2020, after a call with Luna creator Do Hyeong Kwon, the ruling said a number of Galaxy personnel made the following assessment of Luna: “This stuff is confusing, trying to understand what is real vs just financial engineering that creates ‘value’ out of thin air.”

During cross-examination, the ruling said Mr. Novogratz “forthrightly conceded” that Galaxy did not disclose the specific risks of Luna and TerraUSD.

“It would be impossible to convincingly, or even coherently, argue that Galaxy’s public statements contained no misleading omissions and/or active misrepresentations,” Justice Morgan wrote.

Shortly after Luna and TerraUSD crashed, Mr. Novogratz apologized in a public letter where he described the stories of retail investors who had lost their savings as “heart-wrenching.” During Galaxy’s May 9, 2022, quarterly earnings conference call with analysts, the ruling said Mr. Novogratz was “remorseful and conspicuously humbled,” adding his comments were effectively “an announcement of a revised, albeit too late for many investors, risk assessment.”

Justice Morgan wrote that Mr. Novogratz’s “bravado about Luna, culminating with his tattoo and its widely circulated image, and even his expression of humility following Luna’s collapse, speak to a level of excessive and hollow promotional activity that obscures true disclosure.”

Luna and TerraUSD creator Mr. Kwon has since been found liable under U.S. anti-fraud securities laws by a civil jury in New York state. He is also facing federal criminal charges for building several cryptocurrencies that the U.S. Attorney for the Southern District of New York described as being “designed to defraud the public while creating the illusion of commerce and exponential growth.”

In March, 2025, Galaxy and its affiliates agreed to pay US$200-million to settle a New York attorney-general’s investigation into its Luna connections.

Soheil Karkhanechi, founder of SMK Law P.C., which has been appointed class counsel, said in an e-mail that the latest decision “underscores that emerging industries, including digital assets, are subject to the same disclosure standards as every other part of the market.”

The lawsuit, which also names former Galaxy chief financial officer Alex Ioffe as a defendant, is seeking unspecified “monetary relief in an amount to be determined” by the court.

Galaxy “regards this lawsuit as without merit and will continue to defend itself vigorously as the action progresses,” spokesperson Michael Wursthorn said in an e-mailed statement. Asked whether the company intends to appeal the certification ruling, Mr. Wursthorn added: “Galaxy is considering all legal options at this time.”

Mr. Novogratz started his career at Goldman Sachs in the 1990s as a money-market salesman and later as a macro trader based in Hong Kong. His employment there terminated suddenly in 2000. Several years later, in 2018, he told The New Yorker it was a “humiliating” dismissal for “partying like a rock star.”

He also served as president of asset manager Fortress Investment Group. He made a fortune by investing in the cryptocurrency ether when it was trading for less than US$1 in late 2015. Mr. Novogratz then started Galaxy and took it public on the TSX Venture Exchange in 2018.

The company graduated to the TSX in 2020 and in 2025 also listed shares on the Nasdaq. Galaxy then delisted from the TSX earlier this year in order to trade solely in New York.