June 20, 2024

A $2 billion settlement has been reached between New York Attorney General Letitia James and failed crypto lender Genesis to repay their investors. The settlement is said to be the largest against a cryptocurrency company in New York’s history. It mandates restitution for affected investors and bans Genesis trading from operating in the state.

“This historic settlement is a major step toward ensuring the victims who invested in Genesis have a semblance of justice,” said Attorney General James.

“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,” she added.

“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.”

As per the latest settlement, a “Victims’ Fund” for Genesis’ creditors will be created, and the victims will receive distributions from the assets remaining in Genesis’ estate. In the event that Genesis’ remaining assets are not sufficient to repay those creditors, the Victims’ Fund will receive up to $2 billion.

This case relates to Sam Bankman-Fried’s FTX fraud in November 2022 and its consequences. Genesis, owned by Barry Silbert’s Digital Currency Group, was a lending partner of the crypto exchange Gemini’s Earn product. It had its derivatives unit lock up around $175 million in funds with FTX. After hearing the news of FTX’s collapse, Genesis paused withdrawals from the Earn program, which had approximately $900 million in assets from 340,000 users.

Crypto exchange and Genesis creditor Gemini didn’t like the way Genesis dealt with the financial troubles. Cameron Winklevoss wrote an open letter in January 2023 addressed to the CEO of Digital Currency Group, the parent organization of Genesis. In the letter, he accused the parent firm of acting in “bad faith” by delaying the process of returning the $900 million owed to clients of Gemini’s Earn program.

New York Attorney General Letitia James charged Gemini Trust, Genesis Capital, and Digital Currency Group with $1 billion in fraud in 2023.

Genesis, which is undergoing bankruptcy proceedings, agreed to give $1.1 billion back to crypto customers. Meanwhile, Genesis Global Capital, which is also bankrupt, agreed to pay $21 million to settle charges with the U.S. Securities and Exchange Commission (SEC) for violating securities laws that are related to its involvement with the now-defunct Gemini Earn program.

Recently, the failed crypto exchange FTX said in a statement that it expects almost 100% of its former customers to get back the money they lost when the cryptocurrency exchange collapsed. Earlier this year, FTX co-founder Sam-Bankman Fried was sentenced to jail for 25 years.

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