NEW YORK –The New York Attorney General’s office is reporting it has secured $4.3 million from a Brooklyn-based cryptocurrency company, Coin Cafe, for “defrauding” investors.
Coin Cafe is a cryptocurrency trading platform that allowed investors to store their Bitcoin in a Coin Cafe account, known as wallet storage.
An investigation by the Office of the Attorney General found that the company was charging investors exorbitant and undisclosed fees to use its wallet storage, despite marketing its wallet storage as “free” on its website.
“These fees to store Bitcoin were so high that they wiped out investors’ accounts entirely. Coin Cafe charged one New Yorker over $10,000 in one month and another investor more than $51,000 in fees over the course of 13 months,” the AG’s office stated in a release.
Restitution to be Paid
According to the attorney general, Coin Cafe has agreed to its findings that it routinely charged and increased fees without properly informing investors. As a result of the settlement, Coin Cafe will pay restitution to all investors who were misled, including more than $508,000 to more than 340 New York investors who were charged fees without their knowledge, the AG’s office said.
The AG said Brooklyn-based Coin Café, as a cryptocurrency trading platform, failed to register with OAG as a commodity broker-dealer as required by law. In July 2015, Coin Cafe filed an application with the New York State Department of Financial Services (DFS) for a virtual currency license, known as a BitLicense. According to the OAG, Coin Cafe was allowed to continue its virtual currency business for seven and half years while DFS reviewed and considered its BitLicense application. The BitLicense for Coin Cafe was approved by DFS in January 2023.
Violation of Martin Act
However, under New York law, broker-dealers with a valid BitLicense or a pending BitLicense application are still obligated to register with OAG. “Failing to register with OAG violates the Martin Act and puts investors at risk,” the AG’s office explained.
“The AG’s investigation revealed that Coin Cafe claimed to provide its investors with a free account and free wallet storage but, in reality, Coin Cafe started charging storage fees for its wallet service beginning in September 2020 without informing investors,” the OAG said. “Coin Cafe changed the fee structure four times, each time increasing the amount it charged its customers, and each time without clearly telling investors of the increase. Coin Cafe implemented the most drastic fee structure change in October 2022.
“It charged investors the greater of 7.99% of the account or $99 worth of Bitcoin per month if an investor did not buy, sell, or transfer Bitcoin on the Coin Cafe site within 30 days,” the OAG continued. “This amounted to investors being charged fees equal to 96% of the value of their account holdings. The fees were not disclosed on the website, and the notifications to investors did not make clear that investors would be charged increased fees. Ultimately, Coin Cafe took storage fees from more than 300 New York investors. Coin Cafe took hundreds of thousands of dollars-worth of Bitcoin from its investors and completely wiped out hundreds of investor accounts down to a zero balance.”
Terms of Agreement
The agreement requires Coin Cafe to refund all fees to U.S.-based investors who request a refund for the next year. The agreement also requires Coin Cafe to limit the amount of fees charged for its wallet service to 0.002% per Bitcoin per month and ensure that all fees are adequately disclosed to investors.
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