Coinbase Lawsuit: Pay $100 Million For Compliance Failures

The Coinbase lawsuit: Pay $100 Million For Account-Related Compliance Failures to New York Regulators

Stoltmann Law Offices is a Chicago-based law firm offering representation to defrauded investors and victims of fraud nationwide on a contingency fee basis. Stoltmann Law currently represents dozens of clients in cases against Coinbase who have had their accounts hacked and their cryptocurrency was stolen from them. On January 2, 2023, Coinbase entered into a Consent Order with the New York State Department of Financial Services. This settlement with the New York regulators focused on Coinbase’s compliance failures involving anti-money laundering and Know Your Customer Rules. The Coinbase crypto-exchange has been beset by problems involving hacking, illegal account activity, and accounts being used as conduits for illegal activity. The New York Regulators have been actively investigating Coinbase’s compliance apparatus since 2020 and at that time found “serious deficiencies in Coinbase’s compliance function across multiple areas.” This Consent Order is sweeping in its scope and tells the tale of a massive company that spent far too little on critical compliance functions designed to protect its customers. Of course, CEO Brian Armstrong couldn’t afford to buy the most expensive piece of real estate in Southern California if his company spent that money where it belonged – in a customer-protection compliance system.

The Consent Order & Relation To My Coinbase Lawsuit

The Consent Order and DFS investigation is sweeping in scope. It implicates multiple levels of compliance failures at Coinbase, for many years. According to the Consent Order, the “most serious noncompliance concerns Coinbase’s ML/TF compliance program, specifically in its customer onboarding and transaction monitoring obligations. Coinbase has acknowledged its failures in this respect to the Department.” The Order says Coinbase knew about these problems since 2018. The New York State Department also said “Durig much of the relevant period, Coinbase’s KYC/CDD program, both as written and as implemented, was immature and inadequate.” Fundamentally, Coinbase is required by anti-money laundering rules and regulations to understand and to know the customers who use its platform to trade and store crypto-currency. This is true for banks and investment firms too. When you open your account, you have to provide identification and complete an application. The company is then supposed to run your name and identity through various background services to ensure you are who you say you are; that you haven’t stolen someone’s identity; and to ensure that you are not on any watch lists for terrorism or international criminal syndicates.

On a functional level, this process also means that Coinbase is required to understand the purpose of your account and ensure that “suspicious activities” are reported to the Treasury Department. Financial services companies have specific compliance software and staff whose job is to monitor accounts for “red flags” of potential suspicious activity and money laundering. Crypto is famous for being abused by crooks due to its relative inability to be traced. The New York regulators discovered that Coinbase had flagged several thousands of accounts and transactions and had no method of follow-up to determine the extent of any breach. Coinbase calls these Transaction Monitoring Alerts. The Consent Order said Coinbase was “overwhelmed” with a backlog of over 100,000 unreviewed alerts and as such, had critically insufficient KYC/CDD programs.

If your account was hacked by a bad actor, it is extremely likely that red flags existed sufficient to trigger one of these Transaction monitoring alerts which should have led to the account and transactions being delayed before the theft was allowed to occur to completion. Almost always, there are password requests changes, new device verifications, and access to your account from an IP address that makes no geographical sense. Then, once access is granted, the hackers typically convert whatever you have in your account to either BTC or ETH, and then immediately transfer it off your account to a non-whitelisted wallet. These wallets, which can easily be looked up, invariably reflect that they are new and that they concentrate numerous inbound transactions, and split them up into hundreds of outgoing transactions, emptying the wallet. This is Money Laundering 101.

Which Coinbase Customers Have Had Their Accounts Hacked?

If your Coinbase account was hacked and your crypto-currency was stolen as a result, you may have an individual claim & Coinbase lawsuit to pursue through arbitration. Coinbase requires all disputes with its customers to be submitted to the AAA, as opposed to filed in court. Stoltmann Law Offices has represented dozens of victims of Coinbase hacks. You cannot do this on your own. Hire experienced attorneys at Stoltmann Law Offices to fight to get your money back. If you have suffered at least $50,000 in damages, please contact Stoltmann Law Offices, a contingency fee law firm representing clients in arbitration claims against Coinbase, nationwide.