As crypto faces heightened scrutiny and Galaxy Digital makes slow progress addressing material weaknesses, the company’s depreciating investment in its CEO’s NFT sideline leaves shareholders wrestling with questions about independent board oversight.
With thousands of companies holding AGMs during proxy season, it’s hard to know where to start. Glass Lewis’ Controversy Alert service can help, identifying the most crucial meetings globally and allowing investors to make better informed voting decisions with the latest information in hand.
In this post, we provide a roundup of the AGMs taking place this week that were previously highlighted by Controversy Alerts, and look deeper at the situation at Galaxy Digital. To get alerted ahead of time, get in touch and sign up for Glass Lewis’ Controversy Alert service.
Controversy Alerts June 26 — June 30, 2023
6/27 Nissan Motor Co.; Controversy Alert issued on 6/10
6/27 Taisei Corporation; issued on 6/10
6/28 Galaxy Digital Holdings Ltd.; issued on 6/21
6/29 AOKI Holdings Inc.; issued on 6/20
6/29 Hakuhodo DY Holdings Inc.; issued on 6/21
6/29 Mitsubishi Electric Corporation; issued on 6/15
6/30 Goto Gojek Tokopedia Tbk PT; issued on 6/19
Deep Dive: Galaxy Digital Holdings Ltd.
Under a complex structure involving multiple LLCs and multiple classes of ownership interests, CEO Mike Novogratz effectively controls Galaxy Digital Holdings Ltd.’s principal operating subsidiary and holds securities convertible into a majority of the fully-diluted ordinary share capital.
He also co-founded Candy Digital, an NFT (non-fungible token) company in which Galaxy has invested millions. Galaxy wrote down the value of that investment significantly over the past year, from $121 million to $16 million – yet still acquired an additional $13 million worth of shares since the fiscal year end. This purchase occurred concurrently to reports of sports retailer Fanatics, formerly a 60% owner of Candy Digital, divesting its stake.
Reviewing these related party transactions falls under the purview of the board’s compensation, corporate governance and nominating committee. Despite the expansive remit, the company is proposing that the committee comprise just two members following recent director departures. And despite the company’s assertion that both of those members are independent, shareholders may have questions about newly appointed Richard Tavoso, who is slated to chair the committee. Mr. Tavoso was president of Galaxy until December 2018, and has since then been a director on the board of managers of another LLC – the Cayman Islands-incorporated entity acting as general partner – in Galaxy’s dizzying holding structure. His prior experience may also be of interest – he was reportedly a college wrestling teammate and/or roommate of Mr. Novogratz at university, and his career in trading has allegedly been linked with steep regulatory fines and inspired books.
The board’s audit committee could also face scrutiny after the company failed to resolve material weaknesses in financial reporting controls identified in last year’s Management Discussion & Analysis. While a remediation plan is in place, a range of issues have persisted, from insufficient resources to inadequate processes and record-keeping to ongoing overlap between those responsible for authorizing, executing, and recording trades of digital assets.
And there are broader, existential concerns. With crypto facing unprecedented regulatory scrutiny– most notably with big exchanges Binance and Coinbase being charged by the SEC – Galaxy’s CEO Novogratz has been quoted implying an accelerated desire to move operations offshore: “Companies like ours are looking at how fast we can move people offshore.” In an early May 2023 conference call he noted the “regulatory headache” faced by industry participants in the U.S.: “We still have a hangover, as well, from the denting of trust that FTX and other bad actors in the space created.”
Shareholders will be hoping that the bad actors in crypto don’t outnumber the good; otherwise it could be a rather lonely existence for companies like Galaxy once the SEC and other enforcers are done prosecuting.
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