Genesis Global Trading has agreed to pay $8m and give up its BitLicense (New York’s license for virtual currency activities) to settle anti-money-laundering (AML) and fraud charges against it. Confirmation came from New York State Department of Financial Services (NYDFS) Superintendent Adrienne A Harris.
“Genesis Global Trading’s failure to maintain a functional compliance program demonstrated a disregard for the Department’s regulatory requirements and exposed the company and its customers to potential threats,” Superintendent Harris said in a statement shared with Fortune, the news outlet that first reported the news.
No AML officer, no CISO reports
Specifically, NYDFS found that Genesis Global Trading failed to meet required standards in Bank Secrecy Act/AML compliance, transaction monitoring, Suspicious Activity Report filing, Office of Foreign Assets Control screening, and cybersecurity.
NYDFS examined Genesis twice in routine inspections, the agency said in its press release, and it found AML and cybersecurity failures that the firm addressed with “little effort or resources”. It apparently had no dedicated officer to oversee AML compliance.
The initial, full-scope examination covered the period May 17, 2018, through March 31, 2019 and the second full-scope examination covered the period April 1, 2019 through March 31, 2022.
The agency said that while Genesis’s business had grown significantly during the period between the two exams, little effort or resources had been directed to addressing the deficiencies identified in the first one.
Under the agency’s cybersecurity rules, the covered entity’s chief information security office (CISO) must report in writing, at least annually, to the
entity’s board of directors about the status of the cybersecurity program, as well as any material cybersecurity risks facing the covered entity. The business must also, through its CISO, annually report on the status of its cybersecurity program and certify as to its compliance with the cybersecurity regulations with NYDFS.
None of this happened at Genesis, the agency said, until a new CISO was hired in November 2022.
NYDFS’s Virtual Currency Regulation
As the agency’s order spells out, virtual currency companies have obligations in New York that are described in NYDFS’s Virtual Currency Regulation.
Among the licensing and compliance requirements contained in the Regulation, each licensee must comply with financial reporting requirements; develop and implement various compliance policies and programs, including a robust AML program and cybersecurity program; create a business continuity and disaster recovery policy; and ensure that consumers are fully informed about all aspects of the transactions into which they enter.
Through the agency’s VOLT initiative, it has added more than 60 experts to oversee licensing and strengthen supervision in areas such as AML, accounting oversight, financial crimes, data governance, and cybersecurity in the virtual currency arena.
“Genesis Global Trading’s failure to maintain a functional compliance program demonstrated a disregard for the Department’s regulatory requirements and exposed the company and its customers to potential threats.”
Adrienne Harris, Superintendent, New York State Department of Financial Services
The agreement comes amid an ongoing lawsuit filed in October by the New York Attorney General’s (AG’s) Office that alleges Genesis Global defrauded investors by covering up more than $1 billion in losses alongside its parent company Digital Currency Group and Gemini Trust.
An investigation by the AG’s office alleges that Genesis operated an investment program it ran with Gemini Trust Company called Gemini Earn within which it lied to investors. Gemini repeatedly assured investors that investing with Genesis through their Gemini Earn program was a low-risk investment, the AG’s office contends.
However, its investigation found that Gemini’s internal analyses of Genesis showed that the company’s financials were risky and at one point highly concentrated with one entity, Sam Bankman-Fried’s Alameda, without revealing this information to investors.
