New York Attorney General Letitia James has successfully reached a settlement with Coin Cafe, a Brooklyn-based cryptocurrency company, securing $4.3 million in restitution for defrauded investors. The investigation conducted by the Office of the Attorney General (OAG) revealed that Coin Cafe had deceived investors by charging excessive and undisclosed fees for its wallet storage service, despite marketing it as āfreeā on its website.
This agreement not only emphasizes the need for increased oversight and regulations in the cryptocurrency industry but also aims to provide full restitution to affected investors. The following article offers a comprehensive overview of the case.
Deceptive Practices Unveiled: Coin Cafeās Fraudulent Scheme
Coin Cafe, a cryptocurrency trading platform, allowed investors to store their Bitcoin in a wallet storage account. However, an investigation conducted by the OAG found that Coin Cafe was charging investors significantly high and undisclosed fees for utilizing their wallet storage service. The company had initially marketed this service as āfreeā on its website. Consequently, many investors saw their accounts completely depleted due to these excessive fees.
Shockingly, one New Yorker was charged over $10,000 in fees within a month, while another investor incurred fees amounting to more than $51,000 over a span of 13 months. Coin Cafe had been regularly charging and increasing fees without providing adequate disclosure to investors, as determined by the OAGās findings.
Coin Cafeās Regulatory Non-Compliance and Violations
Coin Cafe, as a Brooklyn-based cryptocurrency trading platform, had failed to register with the OAG as a commodity broker-dealer, a legal requirement. Although the company had submitted a BitLicense application to the New York State Department of Financial Services (DFS) in July 2015, it continued its virtual currency operations for seven and a half years while awaiting DFSās review and approval.
While BitLicense was eventually granted in January 2023, Coin Cafe was obligated to register with the OAG during that period. The failure to do so not only violated the Martin Act but also put investors at risk. The investigation also discovered that Coin Cafe had made false claims about providing a free account and wallet storage, as it had begun charging storage fees without notifying investors in September 2020. Coin Cafe modified its fee structure four times, each time increasing the charges without clearly informing investors of the changes.
Legal Actions and Recoveries in the Cryptocurrency Industry
Attorney General James and her office have demonstrated a commitment to enforce New York laws within the cryptocurrency industry and protect investors. In recent months, several notable cases have been pursued, resulting in recoveries and legal actions against non-compliant platforms. Lawsuits were filed against CoinEx and KuCoin for their failure to register as commodity broker-dealers, while a multistate coalition recovered $24 million from Nexo for operating illegally.
Additionally, the former CEO of a crypto company Celsius was sued for defrauding investors and concealing the companyās financial condition. These actions highlight the Attorney Generalās dedication to safeguarding investors and combating fraudulent practices within the cryptocurrency industry.
Attorney General James encourages individuals affected by deceptive conduct within the virtual assets market to report these issues to the OAG. Furthermore, workers within the cryptocurrency industry who have witnessed misconduct or fraud are encouraged to file a whistleblower complaint with the Attorney Generalās office, even anonymously.
Conclusion
The successful settlement between the New York Attorney Generalās office and Coin Cafe marks another significant step toward protecting investors and enhancing regulation within the cryptocurrency industry. Coin Cafeās deceptive practices, including charging undisclosed fees and operating without proper registration, have highlighted the need for increased oversight. With this settlement, affected investors will receive full restitution, and Coin Cafe will be required to comply with stricter regulations.
