Bitcoin custody service BitGo said it would sue crypto-focused financial services company Galaxy Digital for $100 million in damages after Galaxy said on Monday it was terminating a $1.2 billion deal to acquire the company.
Galaxy, run by Mike Novogratz, cited an alleged failure by BitGo to deliver required audited financial statements for 2021 by July 31. In its Monday statement announcing the termination, Galaxy said no termination fee would be paid out.
In a Monday blog post, BitGo said that Galaxy’s decision to not pay out a $100 million reverse break fee was improper and that Galaxy had promised it the $100 million break fee in March to persuade the company to extend the merger agreement.
“The attempt by Mike Novogratz and Galaxy Digital to blame the termination on BitGo is absurd,” said R. Brian Timmons, a partner with Quinn Emanuel, the law firm representing BitGo, in a statement. “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.”
A spokesperson for Galaxy Digital told Fortune that the company would defend itself against BitGo’s claims.
“We believe BitGo’s claims are without merit and we will defend ourselves vigorously. As previously stated, BitGo did not provide certain BitGo financial statements needed by Galaxy for its SEC filing. Galaxy’s Board of Directors then made the decision to exercise its contractual right to terminate,” the spokesperson said in an email.
When the deal was announced last year, the sides hailed it as the first billion-dollar acquisition in crypto—though much of the value appeared to derive from Bitcoin that BitGo held on its balance sheet, rather than the company’s custody operations.
The deal was supposed to close by the end of 2021 but was continually pushed back. Under its terms, BitGo shareholders were to get 33.8 million newly issued shares of Galaxy stock and $265 million in cash, valuing the deal above $1 billion. But earlier this year, Galaxy said it would increase the number of shares it would pay for the deal as its stock price dropped.
“Galaxy remains positioned for success and to take advantage of strategic opportunities to grow in a sustainable manner. 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,” said Galaxy CEO Novogratz in a statement.
On Galaxy Digital’s first-quarter earnings call, Novogratz said the company was still committed to the BitGo acquisition.
“Listen, we are as anxious as you to close our transaction with BitGo and get that part of our history started,” he said on the call in May.
And on the company’s second-quarter earnings call last week, Galaxy Digital’s copresident Damien Vanderwilt said he was hopeful that BitGo would be one of the companies to provide it with custody services.
In the second quarter, Galaxy reeled from the general downturn in crypto prices, reporting a net loss of $554.7 million, more than three times higher than the firm’s loss in the same quarter last year. The company’s assets under management dropped to $1.7 billion from $2.7 billion in the first quarter of the year.
Galaxy said in its Monday statement that it is still committed to listing on the Nasdaq. It is currently listed on the Toronto stock exchange. The company said it is waiting on review and approval from the Securities and Exchange Commission for the listing.
Shares of Galaxy Digital were up 3.67% to about $8.91 on Monday afternoon following the news.
Update, Aug. 15, 2020: This article has been updated to include Galaxy Digital’s updated stock price and to include mention of BitGo’s intention to sue Galaxy Digital. The article was updated to include comment from Galaxy Digital.