---------- Forwarded message ---------
From:
Date: Fri, Jul 26, 2024, 4:25 PM
Subject: Your Freedom of Information Law ("FOIL") Request
FOIL-2024-097182-022476
To:
Dear Mr. Larson:
Attached please find the Department's determination pertaining to the
aforementioned FOIL request. Because your request has been answered, your
request is now closed.
Tracking Number:FOIL-2024-097182-022476
SENT VIA EMAIL
Email: G@xny.io, michaelspafford@paulhastings.com
July 26, 2024
Mr. Gunnar Larson
xNY.io – Bank.org
406 West 25th Street
New York, NY 10001
Mr. Michael Spafford
Paul Hastings LLP
2050 M Street NW
Washington DC, 20036
Re: Freedom of Information Law (“FOIL”) Tracking No. 2024-097182
Dear Mr. Larson and Mr. Spafford,
This letter serves as a final determination of the FOIL request received by
the New York State Department of
Financial Services (“Department”) on January 16, 2024, seeking records
relating to Genesis Global Trading (“Genesis”),
and as a trade secret determination for the request submitted by Genesis
that records it submitted to the Department
continue to be excepted from FOIL disclosure under N.Y. Public Officers Law
§ 87(2)(d).
The Department received a FOIL request, which reads as follows:
1. Any and all records concerning the New York State Department of
Financial Services (DFS)
investigation of Genesis Global Trading, Inc. (“Genesis Global Trading”)
leading to seizure of the
firm's BitLicense.
2. Additionally, xNY.io - Bank.org seeks access to records that explain
DFS' calculated $8 million
penalty to New York State for compliance failures that violated DFS’s
virtual currency and
cybersecurity regulations and left the company vulnerable to illicit
activity and cybersecurity
threats. xNY.io - Bank.org notes DFS has recently published other
BitLicense penalties of $100M
and $30M. As such, we aim to review accessible records in congruence with
Genesis' $8M penalty.
3. xNY.io - Bank.org seeks records that indicate any human rights
violations part of the compliance
failures that violated DFS’s virtual currency and cybersecurity regulations
and left the company
vulnerable to illicit activity and cybersecurity threats.
4. Finally, xNY.io - Bank.org seeks any and all STX records associated with
the Genesis
investigation.
As a preliminary matter, Genesis’ BitLicense was not seized, but was
surrendered voluntarily. Additionally, the
Department has no records responsive to the fourth portion of the request.
To the extent the first three parts of the FOIL
request are reasonably described, the Department construes the request as
seeking all records and correspondence exchanged
between Genesis and the Department, and all records created by the
Department in connection with the Department’s
Consent Order dated January 3, 2024 (“Investigation Materials”).
I. Trade Secret Determination
In accordance with Public Officers Law § 89(5)(a)(1), at the time that
Genesis submitted these records to the
Department, Genesis requested that the Investigation Materials be excepted
from public disclosure pursuant to Public
Officers Law § 87(2)(d). That statute provides an exception from disclosure
for records or portions thereof that “are trade
secrets or are submitted to an agency by a commercial enterprise or derived
from information obtained from a commercial
enterprise and which if disclosed would cause substantial injury to the
competitive position of the subject enterprise.”
Afterwards, the Department notified Genesis of the FOIL request and its
right under Public Officers Law §
89(5)(b)(2) to submit a statement of necessity explaining why the
Department should continue to except the Responsive
Records from public disclosure (“Statement”). Subsequently, on April 2,
2024, and April 23, 2024, the Department received
Genesis’ Statements requesting that the Department continue to exempt the
Investigation Materials from public disclosure
under Public Officers Law § 87(2)(d).
In the Statements, Genesis asserts the Investigation Materials contain
confidential financial, operating, and other
proprietary commercial information pertaining to Genesis, and current and
former Genesis affiliated entities, which if
disclosed would cause substantial competitive injury to Genesis and its
affiliated entities. Genesis asserts the Investigation
Materials document confidential commercial business practices, internal
audits and work product, and also reveal the shared
commercial services Genesis provided to other related entities in the
Genesis family of companies, such as onboarding,
AML/BSA procedures, cyber-security assessments and reports, marketing,
strategy, financial reporting, business contracts
and agreements among the Genesis entities, and other nonpublic commercial
activities. Genesis asserts the Investigation
Materials contain the knowledge and understanding of how Genesis operated
and the services it provided, and if made
public, would disclose the inner workings and operations of Genesis and its
affiliates, provide insight into their operations,
and give the recipient of the information an unfair competitive advantage,
resulting in substantial injury to Genesis’
competitive position.
In Encore Coll. Bookstores, Inc. v. Auxiliary Serv. Corp., 87 N.Y.2d 410
(1995), the Court provided the standard
for determining whether records responsive to a FOIL request should be
withheld from disclosure due to competitive injury
concerns. In Encore, the New York Court of Appeals held that determining
whether an entity suffers competitive injury
from public disclosure of its records within the meaning of Public Officers
Law § 87(2)(d), “turns on the commercial value
of the requested information to competitors and the cost of acquiring it
through other means.” Id. at 420. The Court’s
holding recognized that the trade secret/competitive injury exemption
balances the need for openness in government versus
the need “to protect businesses from the deleterious consequences of
disclosing confidential commercial information, so as
to further [New York] State’s economic development efforts and attract
business to New York.” Id. Whether disclosing
records, in whole or in part, would cause substantial competitive injury to
an entity depends on, among other things, the
nature of the information involved and the area of commerce in which the
entity does business. See Committee on Open
Government, Advisory Opinion 10664 (March. 10, 1998).
Applying Encore, the Department agrees that disclosure of the Investigation
Materials would cause Genesisto suffer
substantial competitive injury. A competitor who submits a FOIL request for
the information would receive a windfall,
since the competitor would have paid only a minimal fee, if any, to obtain
proprietary information that Genesis has expended
substantial resources to develop. Additionally, disclosing the
Investigation Materials would create an unleveled playing
field, as Genesis does not possess the commercial business practices of its
competitors. Therefore, disclosing the
Investigation Materials would unfairly benefit Genesis’ competitors,
thereby causing Genesis to suffer substantial injury to
its competitive position.
Based upon the Statements and pursuant to Public Officers Law § 87(2)(d),
the Department determines that
disclosing the Investigation Materials would cause substantial injury to
the competitive position of Genesis and therefore
the Investigation Materials will not be disclosed pursuant to that section
of law.
Pursuant to Public Officers Law § 89(5)(c), the requester, Gunnar Larson,
may appeal this portion of the
determination to withhold records within seven business days by sending an
email to Christine Tomczak, Assistant Counsel,
New York State Department of Financial Services at FOIL.Appeals@dfs.ny.gov.
III. Final Determination
Additionally, the Department is withholding portions of the Investigation
Materials pursuant to Public Officers Law
§ 87(2)(i), which exempts records or portions thereof that, “if disclosed,
would jeopardize the capacity of . . . an entity that
has shared information with an agency to guarantee the security of its
information technology assets, such assets
encompassing both electronic information systems and infrastructures.” The
purpose of that exemption is to permit an
agency to withhold access to codes which, if disclosed, would provide the
requestor with the ability to gain unauthorized
access to information. See Committee on Open Government Advisory Opinion
No. 18911 (June 29, 2012).
Records submitted by Genesis and created by the Department contain
information pertaining to Genesis’ internal
codes, cybersecurity compliance programs and related procedures, and
technology infrastructure. Moreover, in light of the
recent cyber-attacks involving cryptocurrency exchanges, the Department
cannot rule out the possibility that the requested
records could be used to breach the information technology assets of the
entities. Accordingly, the Department is
withholding certain information responsive to your request pursuant to
Public Officers Law § 87(2)(i) to minimize the risk
of such occurrence.
Furthermore, the Department is withholding certain portions of the
Investigation Materials that contain personal
information pursuant to Public Officers Law § 87(2)(b), which exempts
records, or portions thereof, that “if disclosed would
constitute an unwarranted invasion of personal privacy under the provisions
of subdivision two of section eighty-nine of the
[Public Officers Law].” Public Officers Law § 89(2)1
exempts from disclosure, inter alia, “information of a personal nature
reported in confidence to an agency and not relevant to the ordinary work
of such agency.” Public Officers Law §
89(2)(b)(v).
Employee records, organizational charts, and other materials in the
Investigation Materials submitted by Genesis
that contain personal information are being withheld from disclosure
pursuant to § 87(2)(b) to protect the privacy of the
individuals who were previously employed, and are currently employed by
Genesis.
Finally, the Department will not be releasing portions of the Investigation
Materials pursuant to Public Officers
Law § 87(2)(g), which exempts from disclosure records that are
“inter-agency or intra-agency materials which are not: i.
statistical or factual tabulations or data; ii. instructions to staff that
affect the public; iii. final agency policy or
determinations; [or] iv. external audits, including but not limited to
audits performed by the comptroller and the federal
government[.]” Such internal records contain opinions, recommendations,
evaluations, and other subjective commentary by
government employees, and do not contain information that fall within any
of the four exceptions to non-disclosure under
Public Officers Law § 87(2)(g).
Here, the internal opinions, recommendations, and drafts contain the very
kind of information that the exemption
in Public Officers Law § 87(2)(g) is designed to protect. In New York Times
Co. v. City of New York Fire Dep’t, 4 N.Y.
3d 477, 488-89 (2005), the Court of Appeals held that “[t]he point of the
intra-agency exception is to permit people within
an agency to exchange opinions, advice and criticism freely and frankly,
without the chilling prospect of public disclosure
. . . [and] to permit the internal exchange of candid advice and options
between agency employees.” (See also, Miller v.
New York State DOT, 58 A.D.3d 981, 984 [3rd Dep’t 2009])(holding that
“[t]he interagency and intra-agency exemption
applies to records that are deliberative, i.e., communications exchanged
for discussion purposes not constituting final policy
decisions.”)
1 Public Officers Law § 89(2) provides a non-exhaustive list of the types
of information that warrant personal privacy protection. An
agency may also more broadly withhold items that could cause individuals
personal distress, economic hardship or otherwise
humiliate or stigmatize them. See Matter of NY Times Co. v. City of NY Fire
Dept., 4 N.Y. 3d 477, 796 N.Y.S. 2D 302 (2005); see
also Matter of Rhino Assets, LLC v. New York City Department for the Aging,
60 A.D. 3d 538 (1st Dept. A.D., 2009); Matter of
James, Hoyer, Newcomer, et.al. v. State of New York Office of Attorney
General, 910, N.Y.S. 2d 762 (Supreme Ct., NY County,
2010).
Because portions of the Investigation Materials reflect opinions,
deliberations, and communications between
Department employees, they fall squarely within the intra/inter-agency
exception and, accordingly, are also exempt from
disclosure pursuant to Public Officers Law § 87(2)(g).
For the foregoing reasons, the FOIL request is denied.
Pursuant to Public Officers Law § 89(4), the requester, Gunnar Larson, may
appeal this portion of the determination
to withhold records within 30 days by sending an email to Christine
Tomczak, Assistant Counsel, New York State
Department of Financial Services at FOIL.Appeals@dfs.ny.gov.
Very truly yours,
Stephanie Mazza
Associate Attorney
cc: VIA EMAIL
Shoshanah Bewlay, Executive Director
Committee on Open Government
One Commerce Plaza
99 Washington Avenue, Suite 650
Albany, NY 12231
Shoshanah.Bewlay@dos.ny.gov
