New York Attorney General Secures $2 Billion Settlement from Genesis Global Capital for Defrauded Crypto Investors

News | May 27, 2024 By:

On Monday, May 20, 2024, New York Attorney General Letitia James announced a landmark $2 billion settlement with cryptocurrency lending firm Genesis Global Capital that will help compensate thousands of investors who lost money in the company’s bankruptcy.

The settlement, which required approval from a bankruptcy court, establishes a Victims’ Fund that will distribute money to Genesis creditors harmed by its collapse. Genesis filed for bankruptcy in January 2023 after the cryptocurrency market crash led to massive losses.

Attorney General James sued Genesis and its parent company, Digital Currency Group, last year accusing them of concealing over $1 billion in losses from investors in the Gemini Earn program, which allowed people to earn interest by lending cryptocurrencies to Genesis.

Over 29,000 New Yorkers contributed more than $1.1 billion to the investment program according to the lawsuit. James alleged Genesis misled these investors and failed to manage risk properly, leaving customers unable to withdraw their funds when the company declared bankruptcy.

If bankruptcy proceedings do not fully repay creditors based on current cryptocurrency prices, the settlement requires Genesis to provide up to $2 billion total to the Victims’ Fund. The fund will then distribute money to Genesis customers to compensate for their actual losses.

This is the largest settlement ever secured by the New York Attorney General against a cryptocurrency company. It follows several other enforcement actions by James’ office to crack down on deception and improve regulation in the virtual currency industry.

Previously, James’ office recovered over $22 million from cryptocurrency exchange KuCoin, $4.3 million from trading platform Coin Cafe, and $24 million from lending platform Nexo for operating unlawfully in New York. James also sued Celsius Network’s former CEO and scored a $3 million judgment against trading platform Coinseed.

In total, the Attorney General has now captured over $2.5 billion for victimized crypto investors through litigation and settlements. James has also pushed for stronger licensing requirements and disclosure standards for platforms involved with blockchain-based assets like bitcoin.

The Genesis settlement demonstrates that government agencies are serious about protecting consumers from harm in this rapidly growing but still risky sector, James said in a statement. She encouraged anyone affected by misconduct in cryptocurrency markets to report it to her office.

The lawsuit and agreement were handled by Assistant Attorneys General Geoffrey Andreu and John Ruth, with support from economists, investigators and other staff. It represents continued efforts by James and other regulators to curb fraud while fostering responsible development of financial technologies like cryptocurrency.

Going forward, how jurisdictions oversee companies leveraging blockchain for new types of investing will be an important factor shaping the evolution of this emerging financial domain. The New York Attorney General remains committed to defending citizens participating in this emerging space.