Scaramucci Slams NAYG's Lawsuit Against Galaxy Digital as "Lawfare," Citing Unfair Use of Martin Act

Scaramucci Criticizes NAYG’s Lawsuit Against Galaxy Digital: A Case of "Lawfare"

In a recent post on X (formerly Twitter), Anthony Scaramucci, the founder of SkyBridge Capital, lambasted the New York State Attorney General's (NAYG) lawsuit against Galaxy Digital, calling it "lawfare, pure and simple." The lawsuit, filed against Galaxy Digital for its promotional ties to the now-collapsed cryptocurrency Terra (LUNA), has drawn significant attention for its use of the Martin Act—a powerful but controversial New York law.

The lawsuit alleges that Galaxy Digital violated the Martin Act due to its involvement in promoting Terra. The NAYG claims that Galaxy Digital acquired 18.5 million LUNA tokens in October 2020 at a 30% discount, promoted them, and sold them without adhering to proper disclosure rules. As a result, Galaxy Digital was compelled to settle for $200 million. The NAYG's filing accuses the firm of helping artificially inflate Terra's market price from $0.31 per token in October 2020 to $119.18 in April 2022.

The Martin Act: A Double-Edged Sword

The Martin Act, one of the strictest anti-fraud and securities laws in the U.S., allows prosecutors to pursue cases of financial fraud without needing to prove intent. According to Scaramucci, this provision "creates a low standard of proof" that could be prone to abuse. He emphasized that the law’s lack of intent requirement makes it particularly dangerous, arguing that the lawsuit against Galaxy Digital is a prime example of this potential misuse.

"It’s LAWFARE, pure and simple due to an obscure but dangerously powerful New York law known as the Martin Act," Scaramucci wrote in his March 28 post. He further argued that Galaxy Digital’s CEO, Michael Novogratz, was misled by Terraform Labs and its disgraced former CEO, Do Kwon. Scaramucci stressed that Novogratz had believed everything he was saying about Terra was truthful at the time.

A Confused Crypto Executive Turns to AI for Answers

Keith Grossman, president of enterprise at MoonPay, also weighed in on the matter, admitting that he had never heard of the Martin Act and had to search for information on the law using ChatGPT. Grossman, who expressed his sympathy for Novogratz, called the law “so broad” and described the lawsuit as "the essence of lawfare." Grossman also conveyed his support for Galaxy Digital’s CEO, offering his apologies for the situation he found himself in.

The Allegations Against Galaxy Digital

The lawsuit hinges on claims that Galaxy Digital helped inflate the price of LUNA by promoting it to investors without proper disclosures. The NAYG contends that this promotion contributed to the rise in Terra's market price, which reached a staggering $119.18 in April 2022, only to crash after the token's eventual collapse. Galaxy Digital is accused of profiting from the scheme, reportedly making hundreds of millions of dollars during this period.

In addition to his condemnation of the lawsuit, Scaramucci also defended Novogratz's character. Anthony Pompliano, an asset manager and investor, expressed his support for Novogratz, calling him a “good man” who has contributed significantly to various charitable causes.

The Broader Implications of the Lawsuit

The collapse of Terra and its associated tokens remains one of the most infamous failures in the cryptocurrency industry. In March 2024, U.S. SEC attorney Devon Staren referred to Terra as a "house of cards" that ultimately crumbled, causing significant losses for investors. As regulatory scrutiny over the crypto sector continues to increase, this case highlights the risks and challenges that crypto companies face when navigating the intersection of emerging technologies and traditional regulatory frameworks.