Cryptocurrency trading platform Coin Cafe has been ordered to repay $4.3 million to its users after allegedly charging โexorbitant and undisclosed fees” for storing Bitcoin on the platform โ leading to some accounts being drained entirely of its funds.
Based in Brooklyn, Coin Cafe initially filed an application for a virtual currency license with the New York State Department of Financial Services in July 2015, however, was only approved in January this year.
Despite the seven-and-a-half-year application process, it was allowed to operate throughout but was flagged as putting โinvestors at risk,โ as it didnโt uphold its obligation to register with the Office of the Attorney General for New York โ which all New York broker-dealers are required to do so.
On May 18, it was revealed that the exchange had been charging investorsย โexorbitant” fees for investors to store Bitcoin without properly informing them, leading to some cases in whichย investors’ accounts were wiped out entirely, according toย New York State Attorney General Letitia James.
In a statement, James said Coin Cafe defrauded โhundreds of New Yorkersโ out of thousands of dollars, routinely charging and increasing โfees without properly informing investors.โ
One New York investor incurred fees exceeding $10,000 in a single month, while another investor was hit with fees amounting to $51,000 over a span of 13 months. It was noted:
โThe company was charging investors exorbitant and undisclosed fees to use its wallet storage, despite marketing its wallet storage as โfreeโ on its website.โ
The Office of the Attorney Generalโs (OAG) investigation revealed that Coin Cafe changed the fee structure four times since September 2020, without ever โclearly telling investors of the increase.โ
This is another example of why my office proposed commonsense measures to regulate the cryptocurrency industry and protect people from fraud.https://t.co/G5XkasCfhA
โ NY AG James (@NewYorkStateAG) May 18, 2023
The โmost drastic fee structure changeโ occurred in October 2022 when investors were charged a fee for inactivity. It stated:
โIt charged investors the greater of 7.99 percent 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.โ
James criticized the โdeceptive marketingโ involved, but also highlighted the โlack of effective regulationโ as a contributing factor.
โThis is yet another example of why the cryptocurrency industry needs to be better regulated,โ James stated.
Related: US lawmakers hold EU and UK as examples of crypto regulation in joint hearing
In a settlement, Coin Cafe is required to refund all fees to U.S.-based investors who request a refund within the next year.
The platform is also obligated to notify all U.S-based customers of their eligibility for a refund via email by May 23.
Cointelegraph reached out to Coin Cafe for comment but did not receive a response by the time of publication.
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