Insurance firm Wesco lost $37 million in crypto to retirees following 2022 IRA cyber breach.
Wesco will pay the IRA’s legal costs and customer losses, the filing said in federal court in Miami.
Wesco’s vaguely defined policy wording was bitten again
The settlement follows Wesco’s claim that the professional liability offered to the IRA does not cover cyber threats or cryptocurrencies. However, the IRA argued that the policy wording did not specifically exclude cyber threats and that the insurer had buried its head in the sand.
IRA’s customers sued the company in 2022 for losing crypto invested in one of its products. The product allocated a certain percentage of the plaintiffs’ investment to digital assets held by Gemini.
Following the class action lawsuit, the IRA filed a lawsuit against the crypto custodian for poor security. Wesco later filed an action in the U.S. District Court for South Florida, asking a judge to declare that he was not obligated to defend the IRA against the class action lawsuits.
After arbitration, the two parties agreed that Wesco would pay $37 million in IRA’s legal costs and consumer crypto losses.
The growing importance of crypto custodians
Crypto custodian cybersecurity is a focus of early regulatory frameworks in Hong Kong and Singapore. In addition to using strong cyber hygiene to protect against hacks, crypto companies must keep customer and corporate funds separate, emerging regulations say.
Also, many organizations use a technique called multiparty computation, where the theft of a private key is insufficient to spend money in some wallets. Miners or validators use private keys to verify that a specific address owns the funds they are spending.
Custodians are also becoming increasingly important in bridging the gap between tradify and crypto.
Gemini is one of several large crypto companies offering institutional storage of crypto assets. Keys protecting customers’ assets are typically stored offline in air-gapped cold storage for maximum security.
Learn about the difference between hot and cold wallets here.
Institutional investor BlackRock recently named Coinbase as the custodian of its bitcoin exchange-traded fund. The application to launch the fund is with the US Securities and Exchange Commission.
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