NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A6515A
SPONSOR: Vanel TITLE OF BILL:
An act to amend the penal law, in relation to establishing certain
offenses relating to crypto fraud
PURPOSE OR GENERAL IDEA OF BILL:
Establishes certain offenses relating to crypto fraud.
SUMMARY OF SPECIFIC PROVISIONS:
Section 1 creates article 191 of the penal law of Title K of the penal
law. 191.00 provides important definitions.
§ 191.05 creates penalties that apply to every provision of the act.
§ 191.10 creates the crime of virtual token fraud. § 191.15 creates the
crime of illegal rug pulls. § 191.20 creates the crime of private key
fraud.
DIFFERENCE BETWEEN NEW AND ORIGINAL:
Removes the crime of fraudulent failure to disclose interest in virtual
tokens.
Amends the definition of rug pull to be based on the conduct of the
actor rather than on specifying how the amount that they can sell within
a certain period of time. Creates exceptions to the types of trans-
actions which are not considered rug pulls.
Amends definitions for clarity.
JUSTIFICATION:
Blockchain technology has lately risen to the forefront of the American
consciousness as the foundation for the future of secure technology.
Despite the fact that the internet has become critical in both our
economic and political structures, we have been held back by the lack of
impenetrable technology that exists to allow us to engage in activities
to our democracy and our economic system. Blockchain technology is the
first type of impenetrable code, which means it cannot be hacked, manip-
ulated, controlled, or destroyed by malicious parties. As a result,
blockchain technology has pushed us to the brink of the future, allowing
us to conduct historically risky online activities such as storing and
moving money, investing, producing one-of-a-kind art, and even voting in
elections.
With the advancement of this new technology, it is vital to enact regu-
lations that both align with the spirit of the blockchain and the neces-
sity to combat fraud.
Rug pulls are now wreaking havoc on the cryptocurrency industry. A rug
pull is the act of an unscrupulous virtual token developer creating
virtual tokens, advertising them to the masses as investments, causing
them to rise steeply in price (often hundreds of thousands of percent),
retaining a large supply of the tokens that they created for themselves,
and then selling them all at once, causing the price to plummet instant-
ly. Famous instances include Squid Game Coin ($SQU1D), which began at a
price of $0.016 per coin, soared to roughly $2,861.80 per coin in only
one week, and then crashed to a price of $0.0007926 in less than five
minutes following the rug pull. In other words, the $SQU1D creators
received a 23,000,000% return on their investment, and their investors
were swindled out of millions. This bill will provide prosecutors with
a clear legal framework in which to pursue these types of criminals.
Private key fraud is, in many ways, analogous to stealing someone else's
debit card pin. When someone obtains or discloses another person's
private key for their virtual token wallet, the other person gains
access to all of the virtual tokens in the owner's wallet. This
frequently arises when criminal mobile app developers construct virtual
token wallets that use keylogging software to steal another person's
private key. In 2021, a mobile application attempting to pass itself off
as a legitimate company stole, what was worth at the time, $1.6 million
of Bitcoin from users through the type of action that might constitute
private key fraud under this act.
PRIOR LEGISLATIVE HISTORY:
1/12/22 referred to codes
01/11/23 referred to codes
01/03/24 referred to codes
FISCAL IMPLICATIONS:
To be determined.
EFFECTIVE DATE:
This act shall take effect on the thirtieth day after it shall have.
become law.
