Attorney General James secures $4.3 million from crypto firm for defrauding investors

Agreement Continues AG James Efforts To Increase Oversight And Regulation Of The Cryptocurrency Industry

NEW YORK – New York State Attorney General Letitia James today secured $4.3 million from Brooklyn-based cryptocurrency firm Coincafe for defrauding investors. Coin Cafe is a cryptocurrency trading platform that allows investors to store bitcoins in their Coin Cafe accounts, known as wallet storage. An investigation by the Office of the Attorney General (OAG) found that the company charged investors an exorbitant, undisclosed fee for using wallet storage, even though the company advertised it as “free” on its website. It turned out that These fees for storing bitcoins were so high that they completely wiped out investor accounts. Coincafe charged one New Yorker more than $10,000 in one month and another investor more than $51,000 in 13 months. Coin Cafe agreed with OAG’s findings that it routinely charged and increased fees without properly informing investors. As a result of today’s settlement, Coincafe will pay compensation to all misled investors, including over $508,000 to over 340 New York investors who were unknowingly charged fees. Become.

“Companies may turn to The New Yorker if there are insufficient safeguards to protect consumers and investors,” he said. Attorney General James. “Coincafe defrauded hundreds of New Yorkers out of thousands of dollars due to its deceptive marketing and lack of effective regulation. Just another example of why the cryptocurrency industry, like any financial institution, needs to be better regulated, every New Yorker wants their investments to be protected by common sense regulation and real oversight. You have the right to be certain that

Coin Cafe, a Brooklyn-based cryptocurrency trading platform, failed to register with OAG as a legally required commodity broker-dealer. In July 2015, Coincafe applied for a cryptocurrency license known as Bitlicense with the New York State Department of Financial Services (DFS). Coin Cafe has been allowed to continue its cryptocurrency business for seven and a half years while DFS reviews and considers its BitLicense application. Coin Cafe’s BitLicense was approved by DFS in January 2023. However, under New York State law, a broker-dealer with a valid BitLicense or his pending BitLicense application is still obligated to register with the OAG. Failure to register with OAG violates the Martin Act and puts investors at risk.

According to an OAG investigation, Coincafe claimed to provide investors with free accounts and free wallet storage, but in fact, without informing investors, the storage fee for the wallet service has been reduced from September 2020. Turns out they started charging. Coin Cafe changed its fee structure four times, each time increasing the amount it charges customers without clearly communicating the increase to investors. Coin Cafe implemented the most drastic fee structure change in October 2022. If an investor does not buy, sell, or transfer bitcoin on the Coin Cafe site within 30 days, the investor will be charged 7.99% of the account or $99 worth of bitcoin per month, whichever is greater. was. day to day. This would result in the investor being charged a fee equal to his 96% of the account holdings. Fees were not disclosed on the website, and it was not clear in the notice to investors that investors would be charged an increased fee. Ultimately, Coincafe collected storage fees from more than 300 New York investors. Coin Cafe stole hundreds of thousands of dollars worth of bitcoin from investors and completely erased hundreds of investors’ accounts to zero balances.

In October 2022, an OAG investigator opened an account on Coin Cafe and made two purchases of Bitcoin. In December 2022, Coincafe sold investigators $108 worth of bitcoin in one transaction, then sold $100 to investigators in another transaction. Investigators had a total of $208 worth of bitcoin. However, in March 2023, even after receiving the BitLicense from DFS, Coincafe charged the investigator a $99 fee without proper notice, leaving $109 in the investigator’s account.

Today’s agreement requires Coincafe to refund all fees to US-based investors who request a refund next year. Within five days of the May 18th contract effective date, Coin Cafe will contact customers in the US by email informing them of their entitlement to a refund. Customers may request a refund in writing by email, postal mail, or through the Coincafe website. Coin Cafe provides monthly updates to his OAG on the status of these refunds. The agreement also requires Coincafe to limit fees charged for wallet services to 0.002 percent per bitcoin per month and ensure that all fees are properly disclosed to investors. .

Today’s settlement continues Attorney General James’ efforts to enforce New York law in the cryptocurrency industry and protect New York investors. Earlier this month, Attorney General James unveiled a comprehensive cryptocurrency bill that would tighten regulation of the cryptocurrency industry to protect New York investors. Attorney General James’ nationally-led cryptocurrency legislation, if passed, will combat fraud and deception by coin cafes with the aim of protecting investors by increasing transparency, enhancing consumer protection, and increasing penalties for violations. It will be.

In February and March of this year, Attorney General James filed lawsuits against CoinEx and KuCoin for failing to register as commodity broker-dealers. In January, Attorney General James and the multistate coalition recovered $24 million from cryptocurrency platform Nexo for illegal operations, accusing the former CEO of Celsius of misleading investors and covering up the company’s dire financial situation. (CEO). In June 2022, Attorney General James warned New Yorkers about the perilous risks of investing in cryptocurrencies after the market hit a then-record low. Also in June, Attorney General James reached a nearly $1 million settlement with cryptocurrency platform Block-Fi Lending LLC over the provision of unregistered securities. In March 2022, Attorney General James issued a taxpayer notice to cryptocurrency investors and their tax advisers to ensure they accurately file and pay taxes on their cryptocurrency investments. In October 2021, Attorney General James ordered unregistered crypto lending platforms that are not registered with the state to cease operations.

Attorney General James has again called on New Yorkers affected by deceptive practices in the cryptocurrency market to report these issues to the OAG. Attorney General James also encourages crypto industry employees who may have witnessed misconduct or fraud to anonymously file a whistleblower complaint with the firm.

The investigation was led by Assistant Attorney General Lauren McDonough, along with legal assistants Charmaine Blake and Edward Jaffe, Chief Accountant Sharendra Ramadin, everyone from the Investor Protection Division, and a senior criminal investigator in the Division of Investigations. Assisted by Brian Metz. The Office of Investor Protection is part of the Office of Economic Justice, led by Director Shamiso Maswoswe and Deputy Director Kenneth Haim, and overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.

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