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.
STATE OF NEW YORK
________________________________________________________________________
6515--A
2025-2026 Regular Sessions
IN ASSEMBLY
March 5, 2025
___________
Introduced by M. of A. VANEL -- read once and referred to the Committee
on Codes -- committee discharged, bill amended, ordered reprinted as
amended and recommitted to said committee
AN ACT to amend the penal law, in relation to establishing certain
offenses relating to crypto fraud
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Title K of the penal law is amended by adding a new article
2 191 to read as follows:
3 ARTICLE 191
4 CRYPTO FRAUD
5 Section 191.00 Definitions.
6 191.05 Penalties.
7 191.10 Virtual token fraud.
8 191.15 Illegal rug pulls.
9 191.20 Private key fraud.
10 § 191.00 Definitions.
11 For purposes of this article, the following terms shall have the
12 following meanings:
13 1. "Virtual tokens" shall mean digital assets that exist on a block-
14 chain;
15 2. "Class" shall mean a group of fungible or non-fungible tokens,
16 irrespective of the amount created, that is intended by the developer to
17 be:
18 (a) in the case of fungible tokens, valued and exchanged together; or
19 (b) in the case of non-fungible tokens, regarded as part of the same
20 group of digital or physical items or valued together with the develop-
21 ers' other non-fungible tokens based on the fact that the non-fungible
22 tokens were created by a certain developer, taking into account the
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD09350-02-5
A. 6515--A 2
1 developer's notoriety, sale volume, and how the developer is regarded
2 within virtual token communities;
3 3. (a) "Developer" shall mean any person or entity that exercises
4 significant influence or control over the creation, design, implementa-
5 tion, or core functionality of a virtual token through:
6 (i) creating or substantially contributing to the technical code,
7 smart contracts, or protocols that define the token's functionality;
8 (ii) having decision-making authority over significant technical
9 changes or upgrades to the token or its underlying protocol; or
10 (iii) being publicly identified as the founding team creator, or
11 primary development team for the token;
12 (b) The term "developer" shall not include persons who:
13 (i) merely provide technical services under the direction of others;
14 (ii) are passive investors who acquire tokens but do not participate
15 in development; or
16 (iii) contribute to open-source protocols through non-core development
17 in a decentralized manner;
18 4. "Non-fungible token" shall mean a virtual token used to denote on
19 the blockchain ownership of any digital or physical item or any deriva-
20 tive means thereof;
21 5. "Fungible token" shall mean any virtual token stored on the block-
22 chain other than non-fungible tokens;
23 6. "Own", "owning" and "ownership" shall mean the means by which
24 possession of a digital asset is noted on the blockchain or any deriva-
25 tive means thereof;
26 7. "Wallet" shall mean a device, program, or service which stores the
27 public and/or private keys for virtual token transactions;
28 8. "Burning" shall mean any method of someone making tokens inaccessi-
29 ble to any person including themself with the intention of doing so;
30 9. (a) "Rug pull" shall mean the act of a developer with respect to a
31 class of virtual tokens where such developer, with intent to defraud:
32 (i) creates material misrepresentations or omissions regarding the
33 development, utility, or intended purpose of the virtual tokens; and
34 (ii) subsequently sells a significant portion of their token holdings
35 or abandons the project without delivering the promised functionality or
36 utility, causing a substantial loss in token value primarily as a result
37 of such actions rather than general market conditions;
38 (b) A sale of virtual tokens by a developer shall not constitute a rug
39 pull where the developer:
40 (i) sells their token holdings pursuant to a token sales plan that is
41 disclosed at the time the class of virtual tokens is first made avail-
42 able to persons other than developers through a transparent vesting
43 schedule or similar public declaration; or
44 (ii) the developer's token sales occur at intervals and in amounts
45 consistent with reasonable business operations and ongoing project
46 development;
47 10. "Blockchain" shall mean a cryptographically secured digital ledger
48 or database that:
49 (a) functions as a mathematically verifiable, consensus-based mech-
50 anism for maintaining a single version of a digital record across multi-
51 ple computers or nodes; and
52 (b) uses a distributed ledger technology, or other similar technology,
53 that is maintained by a decentralized network or participants who vali-
54 date and record transactions through a predetermined consensus mech-
55 anism; and
56 11. "Private key" shall mean a cryptographic secret key that:
A. 6515--A 3
1 (a) is mathematically related to a corresponding public key through an
2 asymmetric cryptographic algorithm;
3 (b) enables the cryptographic proof of control over specific virtual
4 tokens recorded on a blockchain;
5 (c) when applied to a digital signature algorithm, demonstrates owner-
6 ship or control of specific virtual tokens or blockchain addresses; and
7 (d) is designed to remain solely in the possession of the owner of the
8 associated virtual tokens.
9 § 191.05 Penalties.
10 Any person, partnership, corporation, company, trust or association,
11 developer, or any agent or employee thereof who violates the provisions
12 of this article shall be subject to a civil fine of not more than five
13 million dollars or imprisoned not more than twenty years, or both,
14 except that where such a person is a person other than a natural person,
15 a fine not exceeding twenty-five million dollars.
16 § 191.10 Virtual token fraud.
17 A person, whether natural or otherwise, is guilty of virtual token
18 fraud when such person engages in deceptive or fraudulent practice with
19 the intent to deceive another in relation to the purchase, sale,
20 exchange, transfer, offering, storage, destruction, or any relevant act
21 related thereto of virtual tokens.
22 § 191.15 Illegal rug pulls.
23 A developer, whether natural or otherwise, is guilty of illegal rug
24 pulls when such developer commits a rug pull, as defined in subdivision
25 nine of section 191.00 of this article.
26 § 191.20 Private key fraud.
27 1. A person, whether natural or otherwise, is guilty of private key
28 fraud when such person obtains or discloses to another person or misuses
29 another's private key without their affirmative consent, provided howev-
30 er that where the person created the private key, such a person shall
31 only be prohibited from disclosing to another or misusing the private
32 key without the owner of the private key's affirmative consent.
33 2. Consent is deemed affirmative only where it is obtained by a
34 request independent from any other request or information provided to
35 another, it is conspicuous, and it informs the person of the conse-
36 quences associated with disclosing their private key to another.
37 § 2. This act shall take effect on the thirtieth day after it shall
38 have become a law. Effective immediately, the addition, amendment and/or
39 repeal of any rule or regulation necessary for the implementation of
40 this act on its effective date are authorized to be made and completed
41 on or before such effective date.
