A $40 billion crash, a tattoo, and a certified class action
An Ontario court has certified a class action accusing a TSX-listed crypto investor of hiding known risks from shareholders.
The Ontario Superior Court of Justice granted leave to proceed and certified the action against Galaxy Digital Holdings Ltd., along with its chief executive Michael Novogratz and chief financial officer Alex Ioffe, in a decision released August 27, 2026. The case, cited as 2026 ONSC 4534 (Court File No. CV-22-00691394-00CP), was brought by a retail investor who purchased 11,076 Galaxy shares.
The plaintiff alleges Galaxy misrepresented the risks tied to its holdings in Luna, a cryptocurrency, and the algorithmic stablecoin TerraUSD, in violation of the Ontario Securities Act's continuous disclosure requirements.
Galaxy, headquartered in New York City and listed on the Toronto Stock Exchange, built a significant position in Luna starting in October 2020. Novogratz promoted the asset extensively on social media and in earnings calls, at one point describing Galaxy's relationship with Luna as "symbiotic." The plaintiff alleges that while Galaxy publicly encouraged investors to hold Luna through price volatility, the company was privately buying at a discount and steadily selling its position, without disclosing that strategy.
When Luna's value collapsed between May 7 and 12, 2022, it wiped out roughly $40 billion in market value. Galaxy's own shares fell sharply within days, and the company disclosed a quarter-to-date loss of $300 million. Days later, Novogratz released a letter to shareholders acknowledging that "both large and small investors saw profits and wealth vanish."
For the court, the central question was whether Galaxy's disclosure documents, including its annual information forms, MD&As and earnings calls between May 2021 and May 2022, adequately explained the specific risks of an algorithmic stablecoin like TerraUSD, including the possibility of a so-called "death spiral" in which a lost currency peg triggers a collapse in value. Justice E.M. Morgan found Galaxy had disclosed general risks associated with digital assets but never disclosed the particular mechanics and risks of the Luna-TerraUSD pairing, even though internal records show Galaxy's own executives had assessed those risks well before the collapse.
The court also noted that Galaxy excluded stablecoins from its reported net exposure to digital assets during the relevant period, on the basis that they were not expected to fluctuate in value, a characterization the ruling found did not match the realities of an algorithmic, rather than fiat-backed, stablecoin.
Justice Morgan concluded there is a reasonable prospect the claim will succeed at trial, satisfying the threshold for leave under section 138.8 of the OSA, and certified the matter as a class proceeding under the Class Proceedings Act. The certified class covers investors who purchased Galaxy shares between May 17, 2021 and May 6, 2022. None of the allegations have been proven, and Galaxy's defence, that Luna represented an immaterial part of its business for most of the class period, was rejected only for certification purposes, not decided on the merits.
For compliance officers and portfolio managers, the case shows how closely Canadian courts are now examining digital asset disclosure, particularly how issuers classify and exclude assets like stablecoins from their risk reporting.
