NYAG investigator falls for misleading claims made by crypto trading platform

• The crypto trading platform, Coin Cafe, comes under the NYAG’s radar for making misleading claims
• An investigator belonging to the AG’s office was caught in the scheme

The US New York Attorney General (NYAG) – Letitia James – announced that a crypto entity would be paying restitution to investors for making misleading claims. The entity in highlight is Coin Cafe – a crypto trading platform – based in Brooklyn. According to a press release, the NYA has secured $4.3 million from the crypto firm for “defrauding investors”.

The NYAG has been quite active in the crypto space lately. The regulator was the first one in the United States to declare Ethereum (ETH) as a security. Attorney James reached this conclusion based on the four prongs of the Howey Test. Since then, the Chairman US Securities and Exchange Commission (SEC) – Gary Gensler – has refused to speak about ETH’s status in the securities market.

The Attorney General’s office claimed that the crypto platform charged “exorbitant and undisclosed fees” from investors for its wallet service. This move comes despite the platform advertising itself as a free platform for wallet storage. The press release said,

“These fees to store Bitcoin were so high that they wiped out investors’ accounts entirely. Coin Cafe charged one New Yorker over $10,000 in one month and another investor more than $51,000 in fees over the course of 13 months.”

Crypto trading platform caught misleading investors

Following an investigation by the NYAG, the crypto trading platform accepted that it did increase its fees and charged investors regularly without notifying them. This has, finally, resulted in the firm agreeing to pay restitution to all the investors who had to pay fees without prior knowledge about the system.

Moreover, Coin Cafe increased its fee structure four times since September 2020, without clearly notifying its user base. Notably, the crypto firm charged users 7.99% of their account or $99 in Bitcoin (BTC) per month if their accounts were inactive for 30 days. NYAG said,

“This amounted to investors being charged fees equal to 96 percent of the value of their account holdings. The fees were not disclosed on the website, and the notifications to investors did not make clear that investors would be charged increased fees. Ultimately, Coin Cafe took storage fees from more than 300 New York investors.”

The NYAG’s statement revealed that over 340 New York investors were impacted by the misleading claims made by Coin Cafe. And, as a result, the crypto trading platform would be paying over $508,000 in restitution. The blog post further read,

“The OAG’s investigation revealed that Coin Cafe claimed to provide its investors with a free account and free wallet storage but, in reality, Coin Cafe started charging storage fees for its wallet service beginning in September 2020 without informing investors.”

An investigator caught in the scheme

Notably, the post also stated that one investigator, belonging to the Attorney General’s office, was caught in the misleading scheme. The investigator was improperly charged, despite the platform receiving a BitLicense. The post read,

“In December 2022, Coin Cafe sold the investigator $108 worth of Bitcoin in one transaction, and then sold the investigator $100 in another transaction. In total, the investigator had $208 worth of Bitcoin. However, in March 2023, even after receiving a BitLicense from DFS, Coin Cafe charged the investigator $99 in fees without proper notice, leaving the investigator with $109 in their account.”