Brooklyn cryptocurrency platform Coin Cafe to pay $4.3M to settle lawsuit

Attorney General Letitia James continues her crusade against crypto companies

May 24, 2023 Rob Abruzzese
Attorney General Letitia James, along with a coalition of five other state attorneys general.Photo: Rob Abruzzese/Brooklyn Eagle
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Brooklyn-based cryptocurrency company, Coin Cafe, is set to pay $4.3 million in restitution to investors following a deceptive fee scheme revealed by the Office of the Attorney General (OAG). Attorney General Letitia James announced the settlement today, affirming her ongoing commitment to bolster the regulation of the cryptocurrency industry.

Coin Cafe, a cryptocurrency trading platform, permitted investors to store Bitcoin in their Coin Cafe accounts, often referred to as ‘wallet storage.’ However, despite marketing their wallet storage as “free,” the company imposed undisclosed and excessive fees that, in numerous cases, entirely depleted investors’ accounts.

Among those affected, one New Yorker was charged over $10,000 within a month, while another investor incurred fees exceeding $51,000 over 13 months.

 “Coin Cafe defrauded hundreds of New Yorkers out of thousands of dollars with its deceptive marketing and due to a lack of effective regulation,” James said. “This is yet another example of why the cryptocurrency industry needs to be better regulated, just like any other financial institution where New York investors put their hard-earned money. Every New Yorker deserves to be confident that their investments are protected with commonsense regulations and real oversight.”

The company has consented to the OAG’s findings of its routinely inflated and undisclosed fees. Consequently, the settlement dictates that Coin Cafe pays full restitution to the more than 340 New York investors, totalling over $508,000, who were charged without their knowledge.

Coin Cafe is obligated to register with the OAG as a commodity broker-dealer under New York law, an obligation they failed to meet. While they filed an application for a virtual currency license, or BitLicense, with the New York State Department of Financial Services (DFS) back in July 2015, it wasn’t until January 2023 that the BitLicense was approved.

The OAG’s investigation revealed numerous instances of Coin Cafe’s underhanded tactics, including increasing its storage fees four times without appropriate investor notification. In the most drastic fee hike, Coin Cafe began charging investors the greater of 7.99 percent of their account balance or $99 worth of Bitcoin per month if no activity occurred on their account within a 30-day period. This change led to fees equal to 96 percent of an investor’s total account value.

Friday’s agreement necessitates that Coin Cafe refunds all fees to U.S.-based investors who request it within the next year. Coin Cafe must also ensure that all fees are adequately disclosed to investors moving forward.

James has been taking significant actions to regulate the cryptocurrency industry over the past year. In February and March, she filed lawsuits against CoinEx and KuCoin for failing to register as commodity broker-dealers. Earlier in January, she led a multistate coalition to reclaim $24 million from Nexo, an illegally operating cryptocurrency platform, and sued the ex-CEO of Celsius for investor fraud and misrepresentation of the company’s financial status.

In June 2022, amidst record lows in the cryptocurrency market, James cautioned New Yorkers about potential investment risks. That same month, she secured a nearly $1 million settlement with Block Fi Lending LLC for offering unregistered securities. To ensure tax compliance, she issued a notice in March 2022 to virtual currency investors and their tax advisors, urging them to accurately declare and pay taxes on their virtual investments. In October 2021, James ordered unregistered cryptocurrency lending platforms to halt operations for failure to register with the state.

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