Genesis Global Trading Agrees $8 Million Settlement With DFS

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  • The New York Department of Financial Services (DFS) recently announced a settlement with Genesis Global Trading for $8 million
  • The company, whose parent company is Digital Currency Group, has also surrendered its BitLicense.
  • DFS found multiple violations in Genesis’s AML and cybersecurity programs, impacting investor protection and potentially allowing criminal activities

The New York Department of Financial Services (DFS) last week announced a settlement with Genesis Global Trading, a subsidiary of the prominent crypto conglomerate Digital Currency Group (DCG), for $8 million. This decision follows an investigation that revealed significant shortcomings in Genesis’s anti-money laundering (AML) and cybersecurity programs, with Genesis surrendering its BitLicense and therefore ceasing all operations in New York as a result. The DFS found that Genesis violated multiple financial rules designed to protect investors and prevent criminal activities among other infractions.

Genesis to Leave New York

Genesis Global Trading, distinct from Genesis Global Capital, primarily focuses on providing trading services to institutional and accredited investors. It played a crucial role as an arm of the digital asset empire controlled by DCG, which had previously faced regulatory scrutiny in 2022, amidst the broader collapse of the crypto market.

Genesis Global Trading itself encountered setbacks due to its association with its parent company, leading to the announcement of the closure of its over-the-counter trading platform in the US last September.

Despite not being directly involved in the bankruptcy and lawsuits faced by DCG, Genesis Global Trading was not immune to the repercussions; it became the sole DCG entity holding a BitLicense in New York, with the DFS being the only US regulator, at both state and federal levels, to provide a comprehensive crypto supervisory framework.

The settlement will see Genesis Global Trading give up its BitLicense, which is notoriously onerous to obtain and which it has held for over five years, and hand over $8 million.

New York Clocks Up Another ‘Win’

This settlement comes at a time of increased discussion in New York regarding crypto regulation, and increased enforcement. In December, the DFS approved the Gemini Earn program for another BitLicense holder, Gemini, led by the Winklevoss twins, with Genesis’s lending arm serving as the counterparty for this investment vehicle; the platform faced collapse during the failures of Three Arrows Capital and Alameda Research in 2022. This was followed by lawsuits from the US Securities and Exchange Commission (SEC) and New York’s attorney general which targeted the Gemini Earn program.

The DFS conducted two examinations of Genesis, the first from May 2018 to March 2019 and the second from April 2019 to March 2022, with a press release on Friday revealing where it found that Genesis had gone wrong:

Following routine examinations and a subsequent enforcement investigation, the Department found that Genesis Global Trading failed to meet required standards in Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance, transaction monitoring, Suspicious Activity Report (SAR) filings, Office of Foreign Assets Control (OFAC) screening, and cybersecurity.

Additionally, the DFS found that Genesis attributed little effort or resources towards addressing these issues despite significant business growth, while an enforcement investigation initiated by the DFS found that Genesis did not complete a risk assessment meeting DFS requirements until mid-2022, and therefore lacked proper controls for addressing the high inherent risks of certain products.

The firm also failed to make sufficient disclosures to customers, did not document AML policies for identifying unusual transactions, and did not designate an AML officer for compliance oversight.

In the second examination, the DFS found that suspicious activity reports (SARs) filed by Genesis did not meet standards, and no SARs were relayed to Genesis’s board of directors until the summer of 2022. Inadequate cybersecurity practices were also noted, including the failure to annually review and approve practices and protect sensitive data.

Following the publication of this piece, Genesis contacted us with a comment on the settlement:

The settlement with the New York State Department of Financial Services regards Genesis Global Trading, Inc., an entity that held a virtual currency license with NYDFS. The entity ceased operations in September 2023 and Genesis is in the process of voluntarily winding it down for business reasons. Genesis had taken substantial measures to address these historical deficiencies and is pleased to resolve this matter. Genesis appreciates the DFS acknowledgment of management’s investment and efforts during and after the examination period.