Banned In New York, CoinEx Returns $1.7 Million to Settle Lawsuit

Hong Kong-based crypto exchange CoinEx is banned from doing business in New York state according to its settlement with the New York Attorney General’s office. 

New York Attorney General Letitia James said that the settlement recovered $1.7 million from CoinEx after it failed to register as a securities and commodities broker-dealer in New York. Of this amount, $1,172,971.50 will go towards refunds to CoinEx investors and more than $600,000 will cover penalties levied by the state. James described the settlement as “a warning to crypto companies” that fail to follow New York laws. 

“Unregistered crypto platforms pose a risk to investors, consumers, and the broader economy,” James said in her statement. “My office will continue to crack down on crypto companies that brazenly disregard the law, mislead investors, and put New Yorkers at risk.”

CoinEx was initially sued by the New York Attorney General in February. In a 38-page filing, the office alleged that CoinEx “engaged in repeated and persistent fraudulent practices” in violation of New York’s Martin Act. The law is considered to be one of the toughest anti-fraud laws in the United States.  

The 1921 law was found to apply to virtual currencies, which were deemed commodities under its terms, in a July 2020 decision by a state appellate court related to James’ lawsuit that year against BitFinex. 

BitFinex is a crypto exchange that James accused in April 2019 of disguising close to $850 million in customer losses in its Tether reserves. The exchange was ordered to cease any business with New Yorkers as part of the settlement reached in February 2021.

According to James’ office, a state investigation from October 2022 found that accounts could be created on CoinEx through New York-based IP addresses. The office said that affected investors will be refunded their crypto within 90 days, or the cash equivalent of any cryptocurrency holdings they had on CoinEx as of April 25, 2023 after that period. 

Under the settlement, CoinEx must geoblock New York IP addresses from using the platform. It must also ban U.S. customers from opening new accounts. Existing US customers will have their accounts altered so that they can only withdraw funds from CoinEx. 

Under New York law, the attorney general’s authority to ban CoinEx from operating in the state is clear, but the state is unable to ban it from operating in other states. A spokesperson for the attorney general’s office specified that the law banned CoinEx from doing business in New York, but asserted that the settlement “codifies” CoinEx’s decision not to operate in the U.S.

On February 24, two days after James’ lawsuit was filed, a user shared a screenshot showing a note from CoinEx explaining that it would be terminating service for its US users. CoinEx did not return Decrypt’s request for a comment. 

James touted the settlement as the latest in a string of lawsuits her office filed against crypto firms in recent years. Altogether her office has collected $500 million in fines from these actions, she said in the press release.