U.S. States Secure Full Refunds for Investors in GS Partners Crypto Scheme

Five U.S. states have successfully reached a settlement with GS Partners, a European company linked to several cryptocurrency investment schemes, including tokenized investments in a Dubai skyscraper. The settlement will result in investors receiving a full refund of their investments, according to a recent announcement by the Texas State Securities Board (TSSB).

Multi-State Crackdown on GS Partners

The scale of the alleged scheme remains unclear, though GS Partners had claimed to have generated $1 billion in sales by last September. This claim came just before a coalition of state securities regulators, led by Texas, initiated investigations into the company’s owner, Josip Heit, and his associated businesses.

In mid-November, regulators across 10 U.S. states and one Canadian province took action against Heit and GS Partners, accusing them of fraud. These regulators issued cease-and-desist orders, forcing the company to halt all securities sales immediately.

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GS Partners' Dubious Investments and Promises

GS Partners operated as a multi-level marketing scheme, using a network of promoters and celebrities, including former boxer Floyd Mayweather, to sell a range of crypto-related investments. Among these were virtual land plots, a staking pool in the so-called “Lydian World” metaverse, and a purported gold-backed cryptocurrency. Additionally, the scheme included vouchers that supposedly represented tokenized shares of a skyscraper in Dubai.

Investors were lured with promises of passive income from leasing units in the Dubai skyscraper, with each voucher representing one square inch of the 36-floor tower. Described in grandiose terms, the tower was marketed as a “glorious skyscraper…inspired by the winds of the desert.” However, when GS Partners failed to achieve its sales target of $175 million, the value of these vouchers collapsed, leaving investors with almost worthless assets.

Settlement and Investor Relief

As part of the settlement reached with Texas, Alabama, Arizona, Arkansas, and Georgia, all civil claims against GS Partners have been resolved, and the investigations have been dropped. In exchange, GS Partners has agreed to refund 100% of the investments made by clients in the states involved in the settlement.

Joe Rotunda, the enforcement director at the Texas State Securities Board, emphasised that the primary goal was to secure financial relief for the affected investors. He noted that achieving full financial restitution is rare in such cases and highlighted the importance of prioritising the recovery of client assets over pursuing financial penalties.

Rotunda also stated that while civil fines are a common outcome in such enforcement actions, his agency’s priority was to ensure that Texan investors were made whole. He explained that diverting investor assets towards state penalties would have been counterproductive.

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Future Legal Actions and Refund Process

The settlement does not prevent other states or federal regulators from pursuing civil or criminal investigations against Heit and his companies. Heit, in a statement issued by his legal team, expressed his commitment to refunding all eligible customers through the claims process, underscoring his focus on protecting the brand and customer interests.

The claims process, managed by AlixPartners LP, is expected to commence in October and will be open for 90 days. The costs of this process will be covered by Heit and his companies as part of the settlement agreement.

Rotunda pointed out that the settlement provides a faster path to financial recovery for investors compared to protracted legal proceedings, which could have delayed restitution.

A Positive Outcome for Investors, But Questions Remain

While the settlement offers much-needed relief for investors, the larger implications of GS Partners’ actions and the potential for further legal scrutiny remain unresolved. The case highlights the ongoing challenges of regulating the cryptocurrency space, where investors can be left vulnerable to deceptive schemes.