New York Department of Financial Services Set to Announce Settlement with Genesis Global
A recent report from Fortune Magazine reveals that the New York Department of Financial Services (DFS) is about to announce a settlement with Genesis Global, a subsidiary of the crypto conglomerate Digital Currency Group (DCG). In a statement, Superintendent Adrienne Harris expressed concerns about Genesis’ failure to maintain a functional compliance program, which demonstrated a disregard for regulatory requirements and put the company and its customers at risk.
Genesis Faces Regulatory Consequences
Prior to the bear market in late 2021, Genesis’ lending practice was associated with failed firms such as hedge fund Three Arrows Capital and Sam Bankman-Fried’s Alameda Research, leading to bankruptcy in early 2023. As a result, Genesis was sued by the Securities and Exchange Commission (SEC) and the New York Attorney General’s office for allegedly offering unregistered securities.
While not directly implicated in the bankruptcy or lawsuits, Genesis suffered setbacks due to its parent company’s struggles. In September 2023, the firm announced the shutdown of its over-the-counter trading platform in the United States.
DFS Examinations Uncover Deficiencies
The DFS conducted two examinations of Genesis. The first examination from May 2018 to March 2019 revealed deficiencies in anti-money laundering and cybersecurity programs. Despite significant business growth, Genesis made little effort to address these deficiencies. Subsequently, DFS initiated an enforcement investigation and found that the company had violated virtual currency and cybersecurity regulations.
In the second examination, DFS discovered that suspicious activity reports (SARs) filed by Genesis did not meet regulatory standards. Additionally, no SARs were relayed to the company’s board of directors until the summer of 2022.
License Surrender and Fine
The DFS also found that Genesis did not conduct enhanced screening of employees and third-party service providers, as required by the Treasury Department. Insufficient cybersecurity practices were also identified, including the failure to annually review and approve practices and inadequate protection of sensitive data. As part of the settlement, Genesis has agreed to pay an $8 million fine and surrender its BitLicense.
Genesis Responds to Settlement
Genesis expressed satisfaction with resolving the matter. A spokesperson stated that the company had taken significant measures to address historical deficiencies and voluntarily ceased operations in September 2023 for reasons unrelated to the settlement.
Hot Take: Genesis Settles with New York DFS over Regulatory Violations
The New York Department of Financial Services is set to announce a settlement with Genesis Global, a subsidiary of Digital Currency Group. Genesis faced regulatory consequences due to deficiencies in its compliance program, violations of virtual currency and cybersecurity regulations, and failure to meet regulatory standards for suspicious activity reports. As part of the settlement, Genesis will pay an $8 million fine and surrender its BitLicense. While Genesis expressed satisfaction with resolving the matter, it is important for crypto companies to prioritize compliance and cybersecurity to avoid regulatory scrutiny in an increasingly regulated industry.
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