Coinme Battles Washington Regulators Over $8 Million in Customer Funds
In a significant regulatory clash that has sent ripples through the cryptocurrency industry, Seattle-based crypto company Coinme finds itself at odds with Washington state officials over how it handled millions in customer funds. The Washington State Department of Financial Institutions (DFI) has ordered the company to cease operations in the state, citing serious concerns about accounting practices and customer protections. This dispute highlights the ongoing tensions between innovative financial technology companies and regulatory frameworks designed for traditional banking systems.
Coinme, which has built its reputation as the operator of the “largest crypto cash network in the world,” allows customers to purchase cryptocurrency with cash at thousands of kiosks nationwide through partnerships with established brands like MoneyGram and Coinstar. The regulatory action centers around how Coinme treated more than $8 million from customers’ unredeemed crypto “vouchers.” According to state regulators, Coinme improperly claimed these funds as company income rather than maintaining them as customer liabilities. The DFI further alleges that the company failed to adequately disclose its revenue recognition practices and didn’t turn unclaimed funds over to the state as required under Washington’s unclaimed property laws – actions the agency characterizes as both “unfair and deceptive” and potentially endangering customer assets.
The regulatory consequences facing Coinme are severe. Washington regulators are seeking to revoke the company’s money transmitter license, impose a substantial $300,000 fine, and ban CEO and co-founder Neil Bergquist from Washington’s money transmission and currency exchange industry for a decade. The DFI’s investigation also uncovered other concerning issues, including allegations that Coinme failed to maintain required financial reserves, filed inaccurate reports to regulators, and even listed an inactive customer support phone number on vouchers for several months in 2023. Perhaps most alarming to financial overseers, the company reportedly maintained a negative tangible net worth at the end of 2022, 2023, and 2024 – raising questions about its overall financial stability. DFI Director Charlie Clark emphasized the importance of these regulations, stating that “Washington’s money transmission laws exist to protect consumers that rely on licensed companies to safely transmit funds,” and promised appropriate action when “investigations reveal serious violations.”
Coinme, however, vigorously disputes these characterizations, framing the issue as primarily an accounting disagreement over a product the company has already discontinued. Ben Enea, Coinme’s chief compliance officer, defended their practices, stating: “Following professional guidance, we treated unredeemed voucher payments the same way major retailers treat unredeemed gift cards — a widely accepted accounting practice.” The company points out that it eliminated the voucher system entirely in August 2023, transitioning to a model where purchases are credited instantly to customer accounts. Coinme also emphasized that all previously issued vouchers remain redeemable with no expiration date, and customers can request refunds in U.S. dollars if they prefer not to convert to cryptocurrency. From the company’s perspective, the contested funds represent less than 1% of the more than $1 billion in transactions it has processed since being founded in 2014.
The dispute also raises questions about regulatory communication and process. Coinme expressed frustration about how the investigation was conducted, claiming they weren’t contacted during the probe and only learned of the regulatory concerns when the cease-and-desist order was publicly announced. This highlights a potential disconnect between innovative financial technology companies and the regulatory frameworks designed to oversee them. Founded in 2014, Coinme was actually an early adopter of regulatory compliance, obtaining its Washington state license in April of that year before launching its first “Bitcoin ATM.” The company later raised $10 million in funding in 2021 to expand its cryptocurrency cash network, demonstrating investor confidence in its business model despite the complex regulatory environment surrounding digital assets.
While the temporary order allows existing Washington customers to withdraw their assets, it prevents Coinme from conducting new business in the state – a significant limitation for a company headquartered in Seattle. The company has requested an administrative hearing to contest the order, setting the stage for what could be a precedent-setting case about how cryptocurrency companies must handle customer funds. This regulatory clash emerges against the backdrop of increasing scrutiny of cryptocurrency businesses nationwide, as regulators work to apply traditional financial oversight principles to innovative digital asset businesses. The outcome of this dispute may provide important guidance not just for Coinme but for the broader cryptocurrency industry on questions of revenue recognition, customer fund protection, and regulatory compliance in an evolving financial landscape where the boundaries between traditional banking, financial technology, and cryptocurrency services continue to blur.
