Five U.S. States Reach Settlement With GS Partners, Investors to Get Full Refunds

The precise scale of the suspected operation remains unclear, however, it reportedly generated $1 billion in sales by September last year, just weeks before a group of state securities regulators, led by Texas, started probing GS Partners’ owner Josip Heit and his firms. Commencing mid-November, regulatory bodies from 10 U.S. states and one Canadian province took enforcement actions against Heit and his companies, accusing them of fraud and demanding an immediate halt to the selling of securities.

Back in the day, I was lured into a now-defunct multi-level marketing scheme called GS Partners. It had a vast network of promoters and celebrities, including Floyd Mayweather, the renowned boxer, peddling crypto-related investments that guaranteed hefty returns. These investments ranged from virtual land plots in a supposed metaverse named “Lydian World,” a gold-backed crypto token, a staking pool within this metaverse, and vouchers purportedly representing tokenized shares of a Dubai skyscraper. Alas, it turned out to be a mirage.

It was reportedly communicated to investors that these vouchers, symbolizing a single square inch of the 36-story tower (often referred to as a “magnificent skyscraper…design influenced by desert winds and exuding grandeur under the scorching sun”), would provide a passive income stream through renting out spaces. However, when GS Partners fell short in their aim of $175 million in sales, the worth of these vouchers dropped drastically, nearing zero.

In the arrangement that Texas, Alabama, Arizona, Arkansas, and Georgia have made with Heit and his firms, all civil disputes against GS Partners have been resolved, investigations ceased, and instead, as compensation, GS Partners will fully reimburse clients from settling states for their investments.

Joe Rotunda, the Enforcement Director at the Texas State Securities Board, emphasized to CoinDesk that quickly returning funds to clients is a top priority for his team.

He stated that it is remarkably uncommon to be able to offer complete, rather than just partial, financial aid. This, he added, is a topic we’ve often discussed as state regulators – whenever such chances arise, we must seize them.

In settlement states, regulators chose not to pursue claims for fines owed to their respective agencies. It’s frequent for civil penalties to be imposed following both state and federal enforcement measures; however, Rotunda emphasized that prioritizing Texas investors was the focus of his agency in this case.

It boils down to what matters most. Our top priority was ensuring our clients’ recovery, stated Rotunda. The thought of seizing their assets as a form of financial penalty and giving them to the state is something I find deeply troubling…So, we were more than willing to forgo accusations of fraud if it meant recovering 100% of client deposits.

Under the terms of the agreement, Heit and his companies remain open to investigation by non-involved nations or regulatory bodies in relation to both civil and criminal cases.

In a statement from his legal team at the prestigious law firm Quinn Emanuel, released on Monday, Heit expressed approval of the settlement. He further stated, “We are dedicated to returning funds to all qualified clients via the claims procedure. The satisfaction and security of our clients will always be our utmost concern. Preserving our brand, reputation, and clientele is our primary goal.

According to Rotunda, it is anticipated that the claims process, handled by AlixPartners LP, will launch in October and last for a duration of 90 days. As part of their agreement, Heit and his businesses will bear the expenses related to AlixPartners’ fees.

As an analyst, I find myself contemplating the situation in Texas, where despite our best efforts to expedite this case through our legal system, it’s unlikely that we would reach the stage of presenting evidence in court before our clients could potentially recover their assets.