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BitGo sues Novogratz’s Galaxy for $100M after merger deal turns sour

In a case that echoes Twitter’s action against Elon Musk, digital asset wallet BitGo is suing Mike Novogratz’s Galaxy Digital Holdings (TSE: GLXY) after Galaxy pulled out of a U.S.$1.2 billion acquisition deal. BitGo is seeking $100 million in damages after filing suit in Delaware’s Chancery Court earlier this week.

Galaxy, described as a digital asset merchant bank, had initially made the $1.2 billion cash and share-swap merger deal in May 2021. It formed part of Galaxy’s plans to move its registered location to Delaware and gain a Nasdaq listing—something that required SEC approval.

As recently as April 2022, Novogratz had praised BitGo as “a bigger and better company” and reorganized the deal to give BitGo shareholders 44.8 million Galaxy shares instead of 33.8 million. However, the new offer also came after Galaxy shares slumped. The company has since posted a net comprehensive loss of U.S.$554.7 million for 2Q 2022.

Galaxy claimed it was terminating the merger deal entirely in August, saying BitGo had failed to fulfill requirements to deliver audited financial statements by July 31. It also stated it did not need to pay a U.S.$100 million termination fee that had been part of the merger deal, which was due to expire in December 2022.

“Galaxy remains positioned for success and to take advantage of strategic opportunities to grow in a sustainable manner,” Novogratz said. “We are committed to continuing our process to list in the U.S. and providing our clients with a prime solution that truly makes Galaxy a one-stop shop for institutions.”

BitGo says Galaxy’s actions are’ improper’ and ‘absurd’

BitGo responded by calling the termination an “improper decision,” and its legal counsel claimed it was “absurd” for Galaxy to blame BitGo for the deal’s failure. The company maintained its operational and strategic outlook remains strong with 3x year-over-year and client growth.

R. Brian Timmons, a partner with BitGo legal representatives Quinn Emmanuel, suggested it was Galaxy’s problems that led to the termination, not BitGo’s:

“The attempt by Mike Novogratz and Galaxy Digital to blame the termination on BitGo is absurd. BitGo has honored its obligations thus far, including the delivery of its audited financials. It is public knowledge that Galaxy reported a $550 million loss this past quarter, that its stock is performing poorly, and that both Galaxy and Mr. Novogratz have been distracted by the Luna fiasco. Either Galaxy owes BitGo a $100 million termination fee as promised or it has been acting in bad faith and faces damages of that much or more.”

Unlike the Twitter/Musk case—which will also be heard in the Delaware Chancery Court—BitGo is not seeking for Galaxy to complete the deal. The two cases are similar in that both involved a large deal gone bad, with both parties pointing the finger of blame at each other.

BitGo is a digital asset custodial specialist, launched in 2013 and aimed at large institutional clients. Apart from its secure wallets and BitGo Trust storage solutions, it also offers trading, lending, and borrowing services. The company said it has over U.S.$64 billion assets in custody, processes approximately 20% of all BTC transactions worldwide, and supports over 500 digital assets.

Galaxy is registered on the Toronto Stock Exchange (TSX: GLXY) and is still seeking a U.S. Nasdaq listing, which is still subject to SEC approval and its reorganization in Delaware. Its clients are primarily from the traditional finance/investing world, whom it aims to connect with opportunities in various blockchain and digital asset economy sectors.

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