New York Attorney General Secures $2 Billion Settlement with Genesis Global Capital

New York Attorney General Letitia James has achieved a historic $2 billion settlement with Genesis Global Capital and its affiliates. The settlement, aimed at compensating defrauded investors, marks the largest of its kind against a cryptocurrency firm in the state’s history and underscores the ongoing regulatory efforts to protect investors in the burgeoning digital asset sector.

Genesis Global Capital, along with Genesis Asia Pacific and Genesis Global Holdco, filed for bankruptcy in January 2023. This bankruptcy was largely triggered by the collapses of other significant crypto entities, including FTX and Three Arrows Capital, which led to substantial financial losses for Genesis. In October 2023, Attorney General James filed a lawsuit against Genesis and other parties, alleging that the company concealed over $1.1 billion in losses from investors involved in the Gemini Earn investment program. The lawsuit was later expanded in February 2024 to include additional allegations of fraud involving Digital Currency Group (DCG), its CEO Barry Silbert, and former Genesis CEO Soichiro Moro, bringing the total alleged fraud to more than $2 billion.

The $2 billion settlement agreement includes the creation of a “Victims’ Fund” to compensate investors who were defrauded by Genesis. This fund will be primarily sourced from the remaining assets in Genesis’ estate following the initial bankruptcy distributions to creditors. If these creditors are not fully compensated based on current digital asset values, the Victims’ Fund will receive up to $2 billion to ensure that investors are reimbursed for their actual losses.

Importantly, Genesis neither admitted nor denied the allegations as part of the settlement. The agreement also bans Genesis from operating in New York, reflecting a stringent stance on the regulation of crypto firms within the state.

This settlement is a significant milestone in Attorney General James’ broader campaign to enforce stricter regulations on the cryptocurrency industry and protect investors. Since taking office, James has secured over $2.5 billion from various predatory cryptocurrency platforms, reinforcing the need for robust regulatory oversight in the digital asset market. Notably, her office has taken action against several other crypto entities, including securing settlements with KuCoin, Coin Cafe, and Nexo for failing to register appropriately and defrauding investors.

The settlement with Genesis also exemplifies the broader consequences of inadequate oversight within the crypto industry. Attorney General James emphasized the importance of a properly regulated marketplace to provide investors with the peace of mind and protection they deserve. The office encourages those affected by deceptive practices in the virtual asset market to report these issues and urges industry workers to file whistleblower complaints, which can be done anonymously.

While Genesis has settled, the lawsuit continues against other defendants, including DCG and its executives, as well as Genesis’ former business partner, Gemini Trust Company, LLC. Gemini, which was also implicated in the lawsuit, had previously agreed to repay its Earn program customers a total of $1.1 billion and to pay a $37 million fine to the New York Attorney General’s office.

The settlement with Genesis is part of a broader reorganization plan approved by a New York bankruptcy court. This plan allows Genesis to sell certain assets, including shares in the Grayscale Bitcoin Trust, to maximize value for creditors and fund the settlement agreement. Additionally, Genesis agreed to a $21 million settlement with the U.S. Securities and Exchange Commission (SEC) over charges related to the unregistered offering and sale of securities.