Texas Wins Full Refunds for Investors in Alleged $1 Billion Crypto Scheme

An American and Texas flag fly in front of the skyline of El Paso and Ciudad Juarez in El Paso, Texas, on Sept. 23, 2022. Joe Raedle/Getty Images

The Texas State Securities Board (TSSB) has announced a landmark settlement that will ensure full refunds for investors caught in a sprawling cryptocurrency investment scheme with an estimated value of about $1 billion. The scheme included tokenized pieces of a Dubai skyscraper.

The settlement, announced by Texas Securities Commissioner Travis Iles on Sept. 9, resolves claims against GS Partners and its parent company, GSB Group, which were accused of selling unregistered securities tied to digital assets.

“The securities markets continue to rapidly evolve, and many legitimate firms are using new technologies to develop cutting-edge products and services, increase efficiencies and contribute to overall economic development,” Iles said in a statement.

“Sellers of allegedly illegal securities, however, are often using the same technologies to deceive and defraud retail clients. Now more than ever, investors should not take flashy graphics, professional videos or the use of sophisticated terminology as a badge of legitimacy.”

The settlement applies to all products and services sold by GS Partners and its affiliates. This includes G999 token, a digital asset that GS Partners claimed could be staked for rewards or even converted into physical gold; a so-called metaverse staking pool investment scheme tied to a virtual world called Lydian World; and XLT Vouchers, which were marketed as representing tokenized partial ownership in a 36-story skyscraper in Dubai.

As part of the settlement, investors who deposited money with GS Partners, either in fiat currency or crypto, will be eligible for full refunds, minus any prior withdrawals. While the exact size of the alleged scheme is unknown, GS Partners claimed to have made $1 billion in sales as of last September before the operation became the target of an investigation spearheaded by Texas.

In its investigation into the activities of GS Partners and its affiliates, TSSB formed a working group with agencies from Alabama, Arizona, Arkansas, and Georgia, which jointly negotiated the settlement terms on behalf of the five states. However, all 50 U.S. states and the District of Columbia, as well as Puerto Rico, the U.S. Virgin Islands, and Guam, will have the opportunity to participate in the same settlement on the same terms, making it a far-reaching action across multiple jurisdictions.

“In my experience, regulatory actions that materially benefit many investors are unfortunately rare, largely because parties accused of illegally raising capital from retail investors tend to spend, not preserve, profits from their misconduct,” Iles said. “Today’s settlement is different. It does not simply provide a benefit [to] Texans and residents of other participating states. Instead, the settlement should effectively make many, many clients whole.”

Under the settlement terms, GS Partners and all participating jurisdictions will enter into no-admit, no-deny consent orders, which avoid alleged fraud or unethical practices, and any prior legal claims or statements suggesting such will be withdrawn or amended. However, despite an absence of admission of guilt on the part of GS Partners, investors are still entitled to full refunds.

Once launched, the claims process will run for 90 days. It will be overseen by AlixPartners, an independent claims administrator with a history of managing high-profile financial cases such as Bernie Madoff’s Ponzi scheme and the FTX bankruptcy. Under the settlement terms, GS Partners will cover the claims processing costs borne by AlixPartners, so investors will receive full refunds and not face the added burden of administrative expenses.

“If you live in Texas, and you purchased any product or service from GS Partners, please reach out to us as soon as possible. We can help you begin preparing for the claims process,” Financial Examiner Seth Oufnac said in a statement, which noted that Texans who deposited fiat currency or crypto with GS Partners and its affiliates can contact the TSSB’s enforcement division (at [email protected]) to begin their claims process.

“We want to hear your story. We can help you navigate this process.”

The consent orders replace any prior administrative actions filed against GS Partners, which include cease-and-desist orders filed by other states.

The term sheet provided by TSSB alongside the settlement notification was signed by Josip Heit, owner of GSB Group.

In a statement issued by his attorneys, Heit said he welcomed the settlement.

“We are committed to refunding all eligible customers through the claims process. Our customers always come first. Protecting the brand, our reputation, and our customers is our top priority,” he said.

No monetary penalties will be imposed on Heit or GSB entities as part of the settlement.