Insurance firm Wesco agrees to settle with the IRA Financial Group following a 2022 IRA cyber breach that lost retirees $37 million in crypto.
The filing in federal court in Miami said Wesco would cover the IRA’s legal costs and customer losses.
Wesco’s Unclear Clear Policy Wording Came Back to Bite
The settlement follows claims by Wesco that the professional liability it offered to IRA didn’t cover cyber threats or cryptocurrencies. However, the IRA argued the policy wording didn’t specifically exclude cyber threats and accused the insurance firm of burying its head in the sand.
IRA’s customers sued the company in 2022 for losing crypto invested in one of their products. The product allocated a certain percentage of the plaintiffs’ investments to digital assets held by Gemini.
Following the class action lawsuit, the IRA sued the crypto custodian for poor security. Wesco later filed an action in the US District Court in South Florida, asking the judge to declare it had no obligation to defend IRA against the class action lawsuits.
After mediation, both parties agreed Wesco would pay for IRA’s legal costs and customer crypto losses amounting to $37 million.
Growing Importance of Crypto Custodians
Crypto custodian cybersecurity has been a focal point of early regulatory frameworks in Hong Kong and Singapore. In addition to employing robust cyber hygiene to protect against hacks, crypto companies must keep customer and corporate funds separate, emerging regulations say.
In addition, several firms use a technique called multiparty computation, where the theft of one private key is insufficient to spend funds in certain wallets. Miners or validators use private keys to verify a specific address owns the funds they are spending.
Custodians are also increasingly important in bridging the gap between TradFi and crypto.
Gemini is one of several large crypto companies offering institutional storage of crypto assets. The keys protecting customers’ assets are usually kept offline in air-gapped cold storage to maximize security.
Learn about the difference between hot and cold wallets here.
Institutional investor BlackRock recently named Coinbase the custodian of a potential Bitcoin exchange-traded fund. The application to launch the fund is with the US Securities and Exchange Commission.
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