Attorney General James reaches $2 billion settlement with Crypto Firm Genesis Global Capital to compensate victims of fraud. Genesis Global Capital barred from conducting business in New York
New York Attorney General Letitia James has successfully reached a $2 billion settlement with bankrupt crypto currency firms Genesis Global Capital, LLC, Genesis Asia Pacific PTE, LTD., and Genesis Global Holdco, LLC. This settlement will benefit defrauded investors by establishing a victims fund, particularly aiding the 29,000 New Yorkers who invested over $1.1 billion through the Gemini Earn program.
Furthermore, the settlement includes a ban on Genesis operating in New York. This landmark agreement, the largest of its kind in state history, reflects Attorney General James' ongoing efforts to enhance oversight and regulation in the cryptocurrency industry, safeguarding New York investors and recovering over $2.5 billion from predatory platforms.
“When investors suffer losses because of fraud and manipulation, they deserve to be made whole,” said Attorney General James. “This historic settlement is a major step toward ensuring the victims who invested in Genesis have a semblance of justice. Once again, we see the real-world consequences and detrimental losses that can happen because of a lack of oversight and regulation within the cryptocurrency industry. New York investors deserve the peace of mind that comes from a properly regulated marketplace, and that is something my office will always act to achieve.”
The agreement, subject to approval from the bankruptcy court, will establish a special fund for the creditors of Genesis known as the "Victims' Fund" and will settle the claims made by Attorney General James against Genesis for deceiving hundreds of thousands of investors across the country, including 29,000 New Yorkers.
In October 2023, Attorney General James initiated a legal action accusing Genesis and other parties of concealing over $1.1 billion in losses from investors who participated in the "Gemini Earn" investment program. The lawsuit was later expanded in February to include Digital Currency Group, Inc. (DCG), Genesis, DCG's CEO Barry Silbert, and Genesis' former CEO Soichiro Moro for defrauding more individuals and institutions of an additional $2 billion. As part of this settlement, Genesis does not admit to the allegations in the lawsuit, and the legal action will proceed against the remaining defendants, as well as Genesis' former business partner, Gemini Trust Company, LLC.
The Victims’ Fund, created as part of the agreement between the Office of the Attorney General (OAG) and Genesis, will be allocated funds from Genesis’ estate after initial bankruptcy distributions to creditors. In case creditors are not fully compensated based on current digital asset values, the Victims’ Fund will be entitled to receive a maximum of $2 billion from Genesis’ remaining assets. The Victims’ Fund will then distribute funds to reimburse Genesis’ creditors for the entirety of their losses until the fund is exhausted.
Attorney General James is calling on New Yorkers impacted by deceptive practices in virtual assets markets to come forward and report these issues to OAG. She is also urging crypto currency industry employees who have witnessed misconduct or fraud to submit an online whistleblower complaint to her office, with the option to remain anonymous.
Genesis Global Capital LLC recently reached an agreement with the U.S. Securities and Exchange Commission (SEC) to pay a hefty $21 million civil fine. The fine was imposed due to allegations that Genesis illegally sold securities through its crypto lending program without proper registration. This announcement was made by the SEC on March 19, 2024.
“We charged Genesis with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors,” said SEC Chair Gary Gensler. “Today’s settlement builds on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.”
The settlement resolves charges that were filed against Genesis and Gemini Trust Company LLC in January 2023, regarding their joint crypto lending program. It is worth noting that the SEC has been actively taking enforcement actions against major players in the crypto industry. Genesis, which had previously filed for bankruptcy in January 2023, operated a lending program that attracted significant investments in crypto assets.
“The collapse of the Gemini Earn program underscores the unknown risks that investors are exposed to when market participants fail to comply with the federal securities laws,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As this enforcement action makes clear, no amount of hype and advertising can substitute for the investor-protection disclosures required by the federal securities laws.”
However, following the collapse of the FTX crypto exchange, customer redemptions were frozen in November 2022. As part of the settlement, the SEC will not receive any portion of the penalty until other claims, including those from retail investors, are resolved by a bankruptcy court.
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