California orders CoinFlip to pay $4.8 million in restitution over crypto ATM fraud

California regulators want CoinFlip, one of the biggest crypto ATM operators in the market, to pay $4.8 million to scam victims after saying the company failed to stop fraud at its machines in the state. For PSPs and high-risk merchants, the point is obvious: once a cash-to-crypto kiosk is part of the flow, fraud controls are no longer a nice-to-have.

1. California’s Business and Consumer Services Agency issued a notice on Thursday saying CoinFlip violated state and federal laws by not better protecting customers from fraud carried out through its machines, which exchange cash for crypto.
2. The state’s Department of Financial Protection and Innovation said its investigation found that, over the past five years, CoinFlip failed to detect, prevent, report, and mitigate suspicious activity, allowing scammers to exploit Californians and steal their money. Regulators also said some of the breached laws were written specifically to protect Californians using crypto kiosks.
3. CoinFlip, based in Chicago and founded in 2015, says on its website that it is the world’s “largest network of cryptocurrency ATMs by transaction volume.” The company says it operates about 5,500 bitcoin ATMs in six countries, including 48 states in the U.S.
4. California said about 500 of CoinFlip’s crypto kiosks are in the state, typically located at grocery and convenience stores or gas stations. Regulators also tied the case to scam patterns targeting older Americans, saying crypto fraud has become an expanding part of schemes aimed at the elderly.
5. The agency said crypto ATM transactions are a fraud magnet because they are immediate, hard to track, and cannot be reversed. CoinFlip did not immediately respond to a request for comment.

The Business and Consumer Services Agency was created last year as part of a state government restructuring by Gov. Gavin Newsom and finalized in July of this year. Rohit Chopra, who previously led the Consumer Financial Protection Bureau and was an FTC Commissioner until 2021, was appointed in May to head the new California agency.