NY State Senate Bill 2023-S359

Current Bill Status - In Senate Committee Codes Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 03, 2024	referred to codes
Jan 04, 2023	referred to codes

2023-S359 (ACTIVE) - Details

See Assembly Version of this Bill:: A944
Current Committee:: Senate Codes
Law Section:: Penal Law
Laws Affected:: Add Title K Art 191 §§191.00 - 191.25, Pen L
Versions Introduced in 2021-2022 Legislative Session:: S8839, A8820

2023-S359 (ACTIVE) - Summary

Establishes the offenses of virtual token fraud, illegal rug pulls, private key fraud and fraudulent failure to disclose interest in virtual tokens.

2023-S359 (ACTIVE) - Sponsor Memo

                                 
BILL NUMBER: S359

SPONSOR: THOMAS
 
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.

§ 191.25 creates the crime of fraudulent failure to disclose interest in
virtual tokens.

 
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 interest 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.


For the purposes of this act, virtual tokens are defined as security
tokens and stablecoins in their current state. The definition of securi-
ty tokens would include virtual tokens similar to conventional security
tokens such as $ETH, leverage tokens such as $XLMUP, and non-fungible
tokens and utility tokens in some scenarios.  A broad virtual token
fraud law is essential for avoiding the ever-evolving schemes involving
virtual tokens.


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 ($SQUID), 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 $SQUID 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.

When individuals invest in virtual tokens, _t is critical that they have
as much information as possible in order to make an informed investment
decision. Unique wallet ownership in any class of virtual tokens is
critical information for investors in order to predict when a rug pull
or other type of virtual token manipulation will occur.  Buyers have the
right to know the degree of control over the virtual tokens price that
the developers have and the degree of consolidation of the tokens in the
developers.

 
PRIOR LEGISLATIVE HISTORY:

2021-22: S.8839 (Thomas) / A.8820 (Vanel) - Referred to Codes.

 
FISCAL IMPLICATIONS:

To be determined.

 
EFFECTIVE DATE:
This act shall take effect on the thirtieth day aftershall have become
law.

2023-S359 (ACTIVE) - Bill Text download pdf

                             
                     S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                    359
 
                        2023-2024 Regular Sessions
 
                             I N  S E N A T E
 
                                (PREFILED)
 
                              January 4, 2023
                                ___________
 
 Introduced  by  Sen.  THOMAS -- read twice and ordered printed, and when
   printed to be committed to the Committee on Codes
 
 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:
 
   Section 1. Title K of the penal law is amended by adding a new article
 191 to read as follows:
                                ARTICLE 191
                               CRYPTO FRAUD
 
 SECTION 191.00 DEFINITIONS.
         191.05 PENALTIES.
         191.10 VIRTUAL TOKEN FRAUD.
         191.15 ILLEGAL RUG PULLS.
         191.20 PRIVATE KEY FRAUD.
         191.25 FRAUDULENT  FAILURE  TO  DISCLOSE  INTEREST  IN   VIRTUAL
                  TOKENS.
 § 191.00 DEFINITIONS.
   FOR  PURPOSES  OF  THIS  ARTICLE,  THE  FOLLOWING TERMS SHALL HAVE THE
 FOLLOWING MEANINGS:
   1. "VIRTUAL TOKENS" SHALL MEAN SECURITY TOKENS AND STABLECOINS;
   2. "SECURITY TOKENS" SHALL MEAN ANY FORM OF FUNGIBLE AND  NON-FUNGIBLE
 COMPUTER CODE BY WHICH ALL SUCH FORMS OF OWNERSHIP OF SAID COMPUTER CODE
 IS  DETERMINED  THROUGH  VERIFICATION  OF TRANSACTIONS OR ANY DERIVATIVE
 METHOD, AND THAT IS STORED ON A PEER-TO-PEER  COMPUTER  NETWORK  OR  ANY
 OTHER  SUCH COMPUTERIZED SYSTEM OR THROUGH ANY DERIVATIVE MEANS OF STOR-
 AGE, AND WHICH CONFORMS TO ONE OF THE FOLLOWING:
   (A) SUCH CLASS OF VIRTUAL TOKENS ARE ADVERTISED BY THE DEVELOPER OR AN
 AGENT OF THE DEVELOPER AT THE DEVELOPER'S DIRECTION  TO  BE  BOUGHT  AND
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.

                                                            LBD01640-01-3
 S. 359                              2
 
 SOLD  FOR  THE  PURPOSE OF PROFIT, WHETHER OR NOT SUCH PURPOSE IS ADVER-
 TISED AS THE SOLE PURPOSE;
   (B)  SUCH CLASS OF VIRTUAL TOKENS ARE REASONABLY UNDERSTOOD BY MEMBERS
 OF THE PUBLIC TO BE BOUGHT AND SOLD FOR THE PURPOSE OF PROFIT;
   (C) THE VALUE OF SUCH CLASS OF VIRTUAL TOKENS  IS  DETERMINED  BY  THE
 SUPPLY AND DEMAND OF THE VIRTUAL TOKEN; AND
   (D)  SUCH  CLASS  OF VIRTUAL TOKENS: (I) ARE NOT PEGGED TO AN EXTERNAL
 SOURCE, WHETHER OR NOT SUCH EXTERNAL SOURCE IS VOLATILE, (II) ARE PEGGED
 TO ANOTHER VIRTUAL TOKEN, OR (III) SUCH CLASS OF VIRTUAL TOKENS  DO  NOT
 EMPLOY  TECHNOLOGY  WHICH  PREVENTS  LARGE FLUCTUATIONS IN ITS PRICE AND
 SUCH TECHNOLOGY FAILS TO PREVENT THE SAME;
   3.   "STABLECOIN" SHALL MEAN ANY FORM  OF  FUNGIBLE  AND  NON-FUNGIBLE
 COMPUTER CODE BY WHICH ALL SUCH FORMS OF OWNERSHIP OF SAID COMPUTER CODE
 IS  DETERMINED  THROUGH  VERIFICATION  OF TRANSACTIONS OR ANY DERIVATIVE
 METHOD, AND THAT IS STORED ON A PEER-TO-PEER  COMPUTER  NETWORK  OR  ANY
 OTHER  SUCH COMPUTERIZED SYSTEM OR THROUGH ANY DERIVATIVE MEANS OF STOR-
 AGE, AND WHICH CONFORMS TO ALL OF THE FOLLOWING:
   (A) SUCH CLASS OF VIRTUAL TOKENS ARE NOT ADVERTISED BY  THE  DEVELOPER
 OR  AN  AGENT OF THE DEVELOPER AT THE DEVELOPER'S DIRECTION TO BE BOUGHT
 AND SOLD FOR THE PURPOSE OF PROFIT,  WHETHER  OR  NOT  SUCH  PURPOSE  IS
 ADVERTISED AS THE SOLE PURPOSE;
   (B)  SUCH  CLASS  OF VIRTUAL TOKENS CANNOT BE REASONABLY UNDERSTOOD BY
 MEMBERS OF THE PUBLIC TO BE BOUGHT AND SOLD FOR THE PURPOSE  OF  PROFIT;
 AND
   (C) THE VALUE OF SUCH CLASS OF VIRTUAL TOKENS IS NOT DETERMINED BY THE
 SUPPLY AND DEMAND OF THE CLASS OF VIRTUAL TOKEN; AND
   (D)  SUCH  CLASS  OF  VIRTUAL  TOKENS ARE PEGGED TO AN EXTERNAL SOURCE
 OTHER THAN ANOTHER CLASS OF VIRTUAL TOKENS, WHETHER OR NOT SUCH EXTERNAL
 SOURCE IS VOLATILE, OR SUCH CLASS OF VIRTUAL TOKENS DO EMPLOY TECHNOLOGY
 WHICH PREVENTS LARGE FLUCTUATIONS  IN  ITS  PRICE  AND  SUCH  TECHNOLOGY
 SUCCEEDS IN PREVENTING THE SAME;
   4.  "CLASS"  SHALL  MEAN  A  GROUP OF FUNGIBLE OR NON-FUNGIBLE TOKENS,
 IRRESPECTIVE OF THE AMOUNT CREATED, THAT IS INTENDED BY THE DEVELOPER TO
 BE:
   (A) IN THE CASE OF FUNGIBLE TOKENS, VALUED AND EXCHANGED TOGETHER; OR
   (B) IN THE CASE OF NON-FUNGIBLE TOKENS, REGARDED AS PART OF  THE  SAME
 GROUP  OF DIGITAL OR PHYSICAL ITEMS OR VALUED TOGETHER WITH THE DEVELOP-
 ERS' OTHER NON-FUNGIBLE TOKENS BASED ON THE FACT THAT  THE  NON-FUNGIBLE
 TOKENS  WERE  CREATED  BY  A  CERTAIN DEVELOPER, TAKING INTO ACCOUNT THE
 DEVELOPER'S NOTORIETY, SALE VOLUME, AND HOW HE OR SHE IS REGARDED WITHIN
 VIRTUAL TOKEN COMMUNITIES;
   5. "DEVELOPER" SHALL MEAN THE PERSON OR PERSONS,  WHETHER  NATURAL  OR
 OTHERWISE,  AND ANY AGENT OR EMPLOYEE THEREOF WHO EITHER CREATE IN WHOLE
 OR IN PART, MAINTAIN IN WHOLE OR IN PART, OR OWN MORE THAN  TEN  PERCENT
 OF  A  CLASS  OF VIRTUAL TOKENS UTILIZING ANY TECHNICAL STANDARD AND WHO
 OFFERS THEM FOR PURCHASE IN THE STATE OF NEW YORK OR, WHERE THE SALE  OF
 THEIR  TOKENS  IN  THE STATE OF NEW YORK IS PROHIBITED, SUCH PERSON DOES
 NOT USE REASONABLE EFFORTS TO PREVENT SUCH CLASS OF VIRTUAL TOKENS  FROM
 BEING MADE AVAILABLE FOR PURCHASE IN THE STATE OF NEW YORK;
   6.  "TECHNICAL  STANDARD" SHALL MEAN THE RULES THAT A CLASS OF VIRTUAL
 TOKENS SHALL COMPLY WITH IN ORDER TO USE THE BLOCKCHAIN NETWORK  OR  ANY
 DERIVATIVE MEANS THEREOF;
   7.  "NON-FUNGIBLE  TOKEN" SHALL MEAN A VIRTUAL TOKEN USED TO DENOTE ON
 THE BLOCKCHAIN OWNERSHIP OF ANY DIGITAL OR PHYSICAL ITEM OR ANY  DERIVA-
 TIVE MEANS THEREOF;
 S. 359                              3
 
   8.  "FUNGIBLE TOKEN" SHALL MEAN ANY VIRTUAL TOKEN STORED ON THE BLOCK-
 CHAIN OTHER THAN NON-FUNGIBLE TOKENS;
   9.  "OWN",  "OWNING"  AND  "OWNERSHIP"  SHALL  MEAN THE MEANS BY WHICH
 POSSESSION OF A DIGITAL ASSET IS NOTED ON THE BLOCKCHAIN OR ANY  DERIVA-
 TIVE MEANS THEREOF;
   10.  "TOKEN" SHALL MEAN THE TECHNICAL STANDARD USED TO CREATE A FUNGI-
 BLE OR NON-FUNGIBLE PIECE OF COMPUTER CODE;
   11. "WALLET" SHALL MEAN A DEVICE, PROGRAM, OR SERVICE WHICH STORES THE
 PUBLIC AND/OR PRIVATE KEYS FOR VIRTUAL TOKEN TRANSACTIONS;
   12. "BURNING" SHALL MEAN ANY METHOD OF SOMEONE MAKING TOKENS  INACCES-
 SIBLE  TO  ANY PERSON INCLUDING HIMSELF OR HERSELF WITH THE INTENTION OF
 DOING SO;
   13. "RUG PULL" SHALL MEAN THE ACT OF A DEVELOPER DEVELOPING A CLASS OF
 VIRTUAL TOKENS, OWNING MORE THAN TEN PERCENT OF THE SUPPLY OF SUCH CLASS
 OF VIRTUAL TOKENS, AND SELLING MORE THAN TEN PERCENT OF THE TOTAL SUPPLY
 OF SUCH CLASS OF VIRTUAL TOKENS WITHIN A FIVE-YEAR PERIOD FROM THE  DATE
 OF THE LAST SALE OF THE SAME;
   14.  "BLOCKCHAIN"  SHALL MEAN ANY TYPE OF TECHNOLOGY WHICH STORES CODE
 ON A DATABASE OF WHICH SAID DATABASE REPRESENTS  THE  RECORD  OF  TRANS-
 ACTIONS THAT MAKE UP VIRTUAL TOKENS OR ANY DERIVATIVE TECHNOLOGY; AND
   15. "PRIVATE KEY" SHALL MEAN THE UNIQUE IDENTIFIER OF A WALLET, OR ANY
 SUBSTANTIALLY SIMILAR ANALOGUE, THAT IS PAIRED WITH A PUBLICLY AVAILABLE
 IDENTIFIER  AND  ASSOCIATED WITH AN ALGORITHM THAT IS NECESSARY TO CARRY
 OUT AN ENCRYPTION OR DECRYPTION REQUIRED TO EXECUTE A TRANSACTION.
 § 191.05 PENALTIES.
   ANY PERSON, PARTNERSHIP, CORPORATION, COMPANY, TRUST  OR  ASSOCIATION,
 DEVELOPER,  OR ANY AGENT OR EMPLOYEE THEREOF WHO VIOLATES THE PROVISIONS
 OF THIS ARTICLE SHALL BE SUBJECT TO A CIVIL FINE OF NOT MORE  THAN  FIVE
 MILLION  DOLLARS  OR  IMPRISONED  NOT  MORE  THAN TWENTY YEARS, OR BOTH,
 EXCEPT THAT WHERE SUCH A PERSON IS A PERSON OTHER THAN A NATURAL PERSON,
 A FINE NOT EXCEEDING TWENTY-FIVE MILLION DOLLARS.
 § 191.10 VIRTUAL TOKEN FRAUD.
   A PERSON, WHETHER NATURAL OR OTHERWISE, IS  GUILTY  OF  VIRTUAL  TOKEN
 FRAUD  WHEN SUCH PERSON ENGAGES IN DECEPTIVE OR FRAUDULENT PRACTICE WITH
 THE INTENT TO  DECEIVE  ANOTHER  IN  RELATION  TO  THE  PURCHASE,  SALE,
 EXCHANGE,  TRANSFER, OFFERING, STORAGE, DESTRUCTION, OR ANY RELEVANT ACT
 RELATED THERETO OF VIRTUAL TOKENS.
 § 191.15 ILLEGAL RUG PULLS.
   1. A DEVELOPER, WHETHER NATURAL OR OTHERWISE, IS GUILTY OF ILLEGAL RUG
 PULLS WHEN SUCH DEVELOPER DEVELOPS A CLASS OF VIRTUAL  TOKEN  AND  SELLS
 MORE  THAN TEN PERCENT OF SUCH TOKENS WITHIN FIVE YEARS FROM THE DATE OF
 THE LAST SALE OF SUCH TOKENS.
   2. THIS SECTION SHALL NOT APPLY TO NON-FUNGIBLE TOKENS WHERE A  DEVEL-
 OPER  HAS  CREATED  LESS  THAN  ONE HUNDRED NON-FUNGIBLE TOKENS THAT ARE
 REGARDED AS PART OF THE SAME SERIES OR CLASS OF NON-FUNGIBLE  TOKENS  OR
 WHERE  SUCH  NON-FUNGIBLE  TOKENS REGARDED AS PART OF THE SAME SERIES OR
 CLASS ARE VALUED AT LESS THAN TWENTY THOUSAND DOLLARS AT  THE  TIME  THE
 RUG PULL OCCURS.
 § 191.20 PRIVATE KEY FRAUD.
   1.  A  PERSON,  WHETHER NATURAL OR OTHERWISE, IS GUILTY OF PRIVATE KEY
 FRAUD WHEN SUCH PERSON OBTAINS OR DISCLOSES TO ANOTHER PERSON OR MISUSES
 ANOTHER'S PRIVATE KEY WITHOUT THEIR AFFIRMATIVE CONSENT, PROVIDED HOWEV-
 ER THAT WHERE THE PERSON CREATED THE PRIVATE KEY, SUCH  A  PERSON  SHALL
 ONLY  BE  PROHIBITED  FROM DISCLOSING TO ANOTHER OR MISUSING THE PRIVATE
 KEY WITHOUT THE OWNER OF THE PRIVATE KEY'S AFFIRMATIVE CONSENT.
 S. 359                              4
 
   2. CONSENT IS DEEMED AFFIRMATIVE  ONLY  WHERE  IT  IS  OBTAINED  BY  A
 REQUEST  INDEPENDENT  FROM  ANY OTHER REQUEST OR INFORMATION PROVIDED TO
 ANOTHER, IT IS CONSPICUOUS, AND IT INFORMS  THE  PERSON  OF  THE  CONSE-
 QUENCES ASSOCIATED WITH DISCLOSING THEIR PRIVATE KEY TO ANOTHER.
 § 191.25 FRAUDULENT FAILURE TO DISCLOSE INTEREST IN VIRTUAL TOKENS.
   1.  A  DEVELOPER  OF A CLASS OF VIRTUAL TOKENS IS GUILTY OF FRAUDULENT
 FAILURE TO DISCLOSE INTEREST IN VIRTUAL TOKENS WHEN SUCH DEVELOPER  DOES
 NOT PUBLICLY AND CONSPICUOUSLY DISCLOSE THE NUMBER OF TOKENS THEY OWN IN
 SUCH  CLASS OF VIRTUAL TOKENS THEY DEVELOPED ON THE LANDING PAGE OF SUCH
 DEVELOPER'S PRIMARY WEBSITE.
   2. FOR THE PURPOSES OF THIS SECTION,  THE  TERM  DEVELOPER  SHALL  NOT
 INCLUDE A PERSON WHETHER NATURAL OR OTHERWISE, AND ANY AGENT OR EMPLOYEE
 THEREOF  WHO OWNS MORE THAN TEN PERCENT OF A CLASS OF VIRTUAL TOKENS WHO
 DOES NOT CREATE OR MAINTAIN, IN WHOLE OR IN PART, A VIRTUAL  TOKEN  THAT
 IS OFFERED FOR PURCHASE IN THE STATE OF NEW YORK.
   §  2.  This  act shall take effect on the thirtieth day after it shall
 have become a law. Effective immediately, the addition, amendment and/or
 repeal of any rule or regulation necessary  for  the  implementation  of
 this  act  on its effective date are authorized to be made and completed
 on or before such effective date.

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Senate Bill S359

Sponsored By

Current Bill Status - In Senate Committee Codes Committee

2023-S359 (ACTIVE) - Details

2023-S359 (ACTIVE) - Summary

2023-S359 (ACTIVE) - Sponsor Memo

2023-S359 (ACTIVE) - Bill Text download pdf

Comments

Senate Bill S359

Share this bill

Sponsored By

Kevin Thomas

Current Bill Status - In Senate Committee Codes Committee

2023-S359 (ACTIVE) - Details

2023-S359 (ACTIVE) - Summary

2023-S359 (ACTIVE) - Sponsor Memo

2023-S359 (ACTIVE) - Bill Text download pdf

Comments