Genesis to forfeit BitLicense, pay $8M fine in NYDFS settlement

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The New York Department of Financial Services (NYDFS), the state’s finance sector regulator, announced a settlement with Genesis Global Trading that will see the company pay a hefty fine and forfeit its BitLicense for compliance failures that violated the state’s digital asset and cybersecurity regulations.

The NYDFS settled with Digital Currency Group (DCG) subsidiary Genesis Global Trading, whereby the company agreed to pay an $8 million penalty and surrender its license to operate a digital asset business in the state.

According to a January 12 announcement, Genesis, a digital asset market-maker and brokerage firm, agreed to the fine and to cease operations in New York following an investigation in which the NYDFS discovered “significant failings” in the company’s anti-money laundering (AML) and cybersecurity programs.

“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,” said NYDFS Superintendent Adrienne Harris.

The NYDFS is New York’s financial sector regulator and custodian of the state’s digital asset licensing regime, BitLicense. Digital asset firms operating in New York have been required to apply for a BitLicense through the NYDFS since 2015, and the permit comes with know-your-customer (KYC), AML, and capital requirements.

“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,” said Friday’s announcement.

As part of the penalty, Genesis will give up its BitLicense, which it has held since 2018, and can no longer provide digital asset services in New York state.

The NYDFS specified in the announcement that the settlement affected Genesis Global Trading, which is a separate entity from Genesis Global Capital, another subsidiary of venture capital firm DCG. Genesis Global Capital, which did not hold a BitLicense, filed for Chapter 11 bankruptcy protection in January 2023 in the wake of the FTX scandal.

In October, New York Attorney General Letitia James accused DCG, Genesis Global Capital, and Gemini of knowingly perpetrating a $1.1 billion fraud on their investors. Genesis Global Trading was not named in the charges.

NYDFS tightening the reigns

The Genesis Global Trading settlement comes after the Office of the New York Comptroller revealed its concerns over the management of the BitLicense scheme in a report published earlier this month.

In the 57-page report, issued January 2, Comptroller Thomas DiNapoli said he only had a “limited assurance” that the DFS adequately performs its oversight responsibilities, with his primary concerns relating to a lack of thoroughness regarding a range of security checks of potential BitLicensees.

When announcing the Genesis Global Trading settlement, the NYDFS, perhaps in an attempt to counter any bad press from the Comptroller report, was keen to point to the positive work it had done in digital asset oversight.

The NYDFS noted that it had issued eight pieces of “innovative industry regulatory guidance,” including guidance setting foundational criteria for USD-backed stablecoins issued by NYDFS-regulated entities, guidance to better protect customers in the event of a virtual currency insolvency, and direction for establishing the use of blockchain analytics tools as a best practice.

“Under Superintendent Harris, DFS brought its first supervisory and enforcement actions against cryptocurrency companies,” said the regulator, which went on to note how the Department had, to date, levied “more than $140 million to hold companies accountable.”

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, 
FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.