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Coin Cafe, a cryptocurrency trading platform based in Brooklyn, has been ordered to reimburse its users a sum of $4.3 million due to allegations of imposing undisclosed and excessively high fees for storing Bitcoin on its platform. This resulted in several user accounts being completely drained of their funds.
Coin Cafe Faces $4.3 Million Repayment for Concealed Bitcoin Fees, Sparking Regulatory Concerns
Coin Cafe submitted an application for a virtual currency license to the New York State Department of Financial Services in July 2015. However, their application faced a lengthy approval process and was not granted until January of the present year.
Throughout the lengthy seven-and-a-half-year application process, Coin Cafe was permitted to continue its operations. Nevertheless, it was flagged for putting investors at risk as it failed to fulfil its obligation to register with the Office of the Attorney General for New York, a requirement for all New York broker-dealers.
On May 18, New York State Attorney General Letitia James revealed that the exchange had been imposing exorbitant fees for storing Bitcoin without adequately informing investors. As a result, some investors’ accounts were completely wiped out. James stated that Coin Cafe defrauded hundreds of New Yorkers, charging and increasing fees without properly notifying investors.
Several instances were highlighted, including one investor incurring fees surpassing $10,000 in a single month and another facing fees amounting to $51,000 over a 13-month period. It was observed that the company advertised its wallet storage as “free” on its website while surreptitiously charging investors undisclosed and exorbitant fees.
The investigation conducted by the Office of the Attorney General revealed that Coin Cafe altered its fee structure four times since September 2020 without clearly notifying investors of the changes. The most significant alteration occurred in October 2022, when investors were charged a fee for inactivity.
James criticized the deceptive marketing tactics employed by Coin Cafe and emphasized the need for better regulation in the cryptocurrency industry. She referred to this incident as yet another example of why effective regulation is necessary.
As part of the settlement agreement, Coin Cafe has the responsibility to reimburse all fees to investors based in the United States who submit a refund request within the upcoming year. Additionally, the platform is obligated to inform eligible U.S.-based customers about their refund eligibility through email before May 23rd.
This is another example of why my office proposed commonsense measures to regulate the cryptocurrency industry and protect people from fraud.https://t.co/G5XkasCfhA
— NY AG James (@NewYorkStateAG) May 18, 2023
On Thursday, the Attorney General announced that her office has reached a $4.3 million restitution agreement with Coin Cafe. She had accused the platform of charging excessive fees and failing to register as a commodity broker-dealer with her office. As part of the agreement, Coin Cafe will refund over $508,000 to more than 340 New Yorkers who were unknowingly charged fees. As a result, the company will refund up to $4.3 million to investors who request a refund within the next year.
A Shocking Increase in Fees
Coin Cafe is promoted as a user-friendly platform for buying and storing Bitcoin, the leading cryptocurrency. However, investigators from the attorney general’s office found that starting in September 2020, Coin Cafe began imposing fees on customers without their knowledge.
By October 2022, the fees reached 7.99% of investors’ accounts or $99 worth of Bitcoin per month, whichever was higher, if investors didn’t engage in transactions on the platform within 30 days. This resulted in fees equivalent to 96% of some account balances. The fees were not disclosed on the website, and notifications to investors did not adequately communicate the increased charges.
Numerous investors experienced their account balances being reduced to zero due to these fees. In one instance, an investigator from the attorney general’s office opened an account with Coin Cafe in October 2022 and made Bitcoin purchases totalling $208. Within five days of the settlement’s effective date, Coin Cafe will contact U.S.-based customers via email to inform them of their eligibility for a refund. Customers can request a refund in writing through email, postal mail, or the Coin Cafe website.
The company will provide monthly updates to the attorney general regarding the status of these refunds. The agreement also imposes a limit of 0.002% per Bitcoin per month on the fees charged for Coin Cafe’s wallet service and mandates adequate disclosure of all fees to investors.
In a statement, Coin Cafe expressed satisfaction in resolving the matter and avoiding litigation. They also emphasized their licensing from the Department of Financial Services and their commitment to providing excellent service to their customers.
Cryptocurrency trading remains a relatively new frontier in the financial technology (fintech) industry, and major cryptocurrencies like Bitcoin or Ethereum have exhibited significant fluctuations in value over the past few years.
Supporters consider cryptocurrencies as an alternative to traditional fiat currencies, envisioning them as a widely accepted form of money for various transactions. However, critics caution that the complexity of cryptocurrencies, coupled with the absence of intermediaries like traditional banks, poses continuous risks for investors.
Attorney General Letitia James is advocating for legislation that would grant her office, along with the state Department of Financial Services, increased regulatory authority. This could include the power to issue subpoenas and impose civil penalties of up to $10,000 per violation by individuals or $100,000 by firms.
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