Billionaire Novogratz Fights $100 Million Fee on Dud Crypto Deal

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(Bloomberg) — Michael Novogratz, the billionaire founder of Galaxy Digital Inc., squared off in court this week with BitGo Holdings Inc. Chief Executive Officer Mike Belshe in their protracted legal fight over a proposed merger that failed four years ago when the cryptocurrency markets cratered.

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BitGo is demanding that Galaxy pay it at least $100 million for pulling out of the $1.2 billion transaction — a deal that was the biggest ever in the crypto industry when it was proposed in 2021. BitGo claims Galaxy failed to use reasonable efforts to get the deal done and hid from it details of probes by US authorities that likely would have impacted their ability to complete the merger.

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Novogratz, a longtime crypto enthusiast with tattoos of Bitcoin and Luna, claimed in testimony this week that Galaxy wasn’t a subject of those investigations, which had no bearing on the regulatory approval process. He also said BitGo forfeited its right to the termination fee by failing to provide the required financial statements in time.

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“The entire time, I was pushing to get this deal done,” Novogratz said Tuesday in Delaware Chancery Court, where the case will be decided by a judge after the trial ends this week. But, he said, both companies eventually realized regulatory approval was unlikely because the US Securities and Exchange Commission under then-Chairman Gary Gensler was making it “very difficult to get this deal done.” At one point, Galaxy even proposed a merger in Canada to wait out the SEC, he said.

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Galaxy is involved in almost all aspects of the crypto business, from Bitcoin mining to digital asset management and trading. The merger agreement with BitGo, a digital-asset infrastructure provider, was part of Novogratz’s plan to expand services as retail investors, hedge funds and institutional investors were jumping into the market and Bitcoin surged through much of 2021.  

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As a condition of the BitGo deal, Galaxy agreed to publicly list the combined company on the Nasdaq exchange, which required SEC approval. Galaxy was already listed in Canada. But the merger faced difficulties with the new SEC accounting guidelines and the industry’s mounting liquidity problems after the collapse of Terraform Labs’ Luna token and its sister currency, TerraUSD, which triggered a “crypto winter.” Luna rose from under $5 to more than $100 in 2021, before dropping to zero early the next year. 

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As the market turned, BitGo negotiated a $100 million termination fee, but that included a deadline for providing audited financial statements. Then the SEC issued accounting guidance that complicated matters. Galaxy announced in August 2022 it was terminating the deal because BitGo failed to provide that information in time, a claim Belshe denied.

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“This was incredibly damaging,” Belshe testified Monday, adding that BitGo had provided all the necessary documentation. “Galaxy is telling the world we can’t pass an audit.” 

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The legal fight has dragged on for years. In May 2024, the Delaware Supreme Court reversed a a judge’s decision to toss the case because of “ambiguous” language in the merger agreement about what would constitute a compliant financial statement from BitGo. Now, a different Delaware judge will decide whether BitGo is entitled to the $100 million fee or more.