The New York attorney general’s office alleges that Coin Cafe charged users exorbitant fees for its custodial services, even though the platform’s website claimed to store cryptoassets for free.
It turns out that Coin Cafe charged one New Yorker more than $10,000 in one month and charged another more than $51,000 over 13 months.
In October 2022, Coin Cafe changed its fee structure, charging investors more than 7.99% of the amount available, or $99 in BTC per month, if an investor did not buy, sell or transfer bitcoins on the platform for 30 days.
Thus, many investors gradually had money written off until their balance was zero.
Coin Cafe management agreed with accusations that the platform regularly charged and increased fees without properly informing investors.
As a result, Coin Cafe will pay compensation to all misled users, as well as more than $508,000 to 340 local investors who had commissions removed without their knowledge;
Beginning May 18, Coin Cafe management will contact customers via email to notify them of their eligibility for compensation.
The platform is also required to limit service fees to 0.002% per bitcoin per month, and henceforth fully disclose such information to investors.
“Coin Cafe scammed hundreds of New Yorkers out of thousands of dollars using marketing gimmicks.
This is another example of why the cryptocurrency industry needs strict regulation, just like any other financial institution where New York investors put their hard-earned money.
Every New Yorker deserves to have their investment protected,” said New York Attorney General Letitia James.
According to the agency’s press release, Coin Cafe did not register as a broker-dealer with the New York Attorney General’s office, according to the law.
In July 2015, Coin Cafe applied to the New York State Department of Financial Services (NYDFS) for a BitLicense license, which was not granted until January 2023.
The platform was allowed to operate virtual currencies for seven and a half years while its application was pending with the NYDFS.
However, under New York law, broker-dealers holding a BitLicense license, or awaiting one, are still required to register with the Attorney General’s Office.
Not registering with the agency puts investors at risk, James noted.
Recall that earlier this month, the New York Attorney General’s Office proposed legislation that would expand its authority to regulate the crypto industry in the state.
This will reduce the incidence of cryptocurrency fraud, says James.