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The cryptocurrency trading platform Coin Cafe has been mandated to reimburse $4.3 million to its users after reportedly imposing “exorbitant and undisclosed fees” for Bitcoin storage on the platform, resulting in some accounts being completely depleted of their funds.
Located in Brooklyn, Coin Cafe submitted an application for a virtual currency license to the New York State Department of Financial Services in July 2015; however, it received approval only in January of this year.
Despite the lengthy seven-and-a-half-year application period, Coin Cafe was permitted to operate continuously but was identified as posing “investors at risk,” as it failed to fulfill its requirement to register with the Office of the Attorney General for New York, which is mandatory for all New York broker-dealers.
On May 18, it was disclosed that the exchange had been imposing “exorbitant” fees for Bitcoin storage without adequately informing investors, leading to instances where investors’ accounts were entirely depleted, according to New York State Attorney General Letitia James.
In a statement, James asserted that Coin Cafe defrauded “hundreds of New Yorkers” out of thousands of dollars, consistently charging and raising “fees without properly informing investors.”
One investor from New York faced fees exceeding $10,000 in a single month, while another incurred fees totaling $51,000 over a period of 13 months. It was observed:
“The company was charging investors exorbitant and undisclosed fees to use its wallet storage, despite marketing its wallet storage as ‘free’ on its website.”
The investigation by the Office of the Attorney General revealed that Coin Cafe altered its fee structure four times since September 2020, without ever “clearly informing investors of the increase.”
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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
— NY AG James (@NewYorkStateAG) May 18, 2023
The “most drastic fee structure change” took place in October 2022, when investors were charged a fee for inactivity. It stated:
“It 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.”
James condemned the “deceptive marketing” involved, while also emphasizing the “lack of effective regulation” as a contributing factor.
“This is yet another example of why the cryptocurrency industry needs to be better regulated,” James remarked.
Related: US lawmakers hold EU and UK as examples of crypto regulation in joint hearing
As part of 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 must also inform all U.S.-based customers of their eligibility for a refund via email by May 23.
Cointelegraph reached out to Coin Cafe for a comment but did not receive a response by the time of publication.
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