Cryptocurrency trading platform Coin Cafe has been ordered to refund $4.3 million to users after allegedly charging “exorbitant and undisclosed fees” for storing Bitcoin on the platform – causing some accounts to be completely drained of funds.
Based 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 was only approved in January this year.
Despite the seven-and-a-half-year application process, Coin Cafe was allowed to operate throughout, but was flagged for putting “investors at risk”[ads1]; as it failed to uphold its obligation to register with the New York Attorney General’s office – as all New York broker-dealers are required to do.
On May 18, it was revealed that the exchange had charged “exorbitant” fees for storing Bitcoin without properly informing investors, leading to some cases where investors’ accounts were deleted entirely, according to New York Attorney General Letitia James.
In a statement, James said tCoin Cafe defrauded “hundreds of New Yorkers” out of thousands of dollars, routinely charged and increased “fees without properly informing investors.”
One investor in New York incurred fees exceeding $10,000 in a single month, while another investor was hit with fees of $51,000 over a 13-month period. It was noted:
“The company charged investors exorbitant and undisclosed fees to use the wallet storage, despite marketing the wallet storage as ‘free’ on its website.”
The attorney general’s investigation revealed that Coin Cafe changed its fee structure four times since September 2020, without ever “clearly telling investors about the increase.”
The “most drastic change to the fee structure” occurred in October 2022, when investors were charged a fee for inactivity. It said:
“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 criticized the “misleading marketing” involved, but also highlighted 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 said.
Related: US lawmakers hold EU and UK as examples of crypto regulation in joint consultation
In a settlement, Coin Cafe is required to refund all fees to US-based investors who request refunds within the next year.
The platform is also obligated to notify all US-based customers of their right to a refund via email by May 23.
Cointelegraph contacted Coin Cafe for comment but did not receive a response at the time of publication.
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