A recent Fortune Magazine report revealed that the New York Department of Financial Services (DFS) is set to announce a settlement with Genesis Global, a subsidiary of the crypto conglomerate Digital Currency Group (DCG).
In a statement shared with Fortune, Superintendent Adrienne Harris expressed concerns about Genesis’ failure to maintain a functional compliance program, stating that it demonstrated a disregard for regulatory requirements and exposed the company and its customers to potential threats.
Genesis Faces Regulatory Consequences
Before the start of 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, which led to its bankruptcy in early 2023.
Subsequently, Genesis was sued by the Securities and Exchange Commission (SEC) and the New York Attorney General’s office for allegedly offering unregistered securities.
While Genesis was not directly implicated in the bankruptcy or lawsuits, it suffered setbacks due to the parent company’s broader struggles. As a result, the firm announced the shutdown of its over-the-counter trading platform in the United States in September 2023.
According to a consent order shared with Fortune, DFS conducted two examinations of the now-bankrupt crypto lending company. The first examination, conducted from May 2018 to March 2019, revealed deficiencies in the firm’s anti-money laundering and cybersecurity programs.
Despite significant business growth, the report notes that Genesis directed little effort or resources to address these deficiencies. Subsequently, DFS initiated an enforcement investigation, which 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. Furthermore, no SARs were relayed to the company’s board of directors until the summer of 2022.
License Surrender And $8 Million Fine
Per the report, the New York 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, including the failure to annually review and approve practices and inadequate protection of sensitive data and nonpublic personal information, were also identified by DFS. The firm has agreed to pay an $8 million fine as part of the settlement.
According to Fortune, the “relatively low” amount reflects Genesis’s cooperation during the investigation and its efforts to update its programs. However, Genesis has also agreed to cease all operations in New York and surrender its BitLicense.
In response to the settlement reached with the New York Department of Financial Services, Genesis has expressed satisfaction with resolving the matter.
A spokesperson shared their perspective with Fortune, stating that the firm had taken significant measures to address “historical deficiencies” and is pleased to have resolved them. The spokesperson emphasized that the company voluntarily ceased its operations in September 2023 and is winding down its business for reasons unrelated to the settlement.
Featured image from Shutterstock, chart from TradingView.com