New York state lawmakers propose bill to criminalize rug pulls

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New York State senator Kevin Thomas proposes a bill to criminalize illegal rug pulls digital assets projects. 

Lawmakers in the state of New York have been sending strong signals to the digital currency industry. A new bill filed by New York State Senator Kevin Thomas proposes to outlaw rug pulls. A companion bill was also filed in New York’s Assembly by Clyde Vanel. 

New York lawmakers target fraudulent digital currency developers 

Senate Bill S8839 and Assembly Bill A8820 both call for the defining, criminalizing, and penalizing digital currency projects designed to fleece investors. Per the Senate bill, it will establish the offenses of virtual token fraud and illegal rug pulls.

It adds that private key fraud and fraudulent failure to disclose an interest in virtual tokens will also constitute criminal activities. However, the bill placed a major focus on rug pulls, a prevalent exit scam format where developers of digital assets drain the project’s funds, leaving investors with worthless tokens. 

The bill stipulated that developers will be guilty of carrying out an illegal rug pull if they sell more than ten percent of their tokens in five years from when the project is created. The text said:

“A developer, whether natural or otherwise, is guilty of illegal rug pulls when such a developer develops a class of virtual token and sells more than 10 percent of such tokens within five years from the date of the last sale of such tokens.”

If passed, the bill will become effective within 30 days. The timing of the proposal is a welcome one as rug-pulls are becoming rampant in the digital assets space, especially among DeFi and NFT projects. 

Recently the U.S. Department of Justice (DOJ) has also been taking action against criminal activity. The DOJ charged Ethan Nguyen and Andre Llacuna, the developers of Frosties—an NFT project—with fraud. The two sold the 9000 NFT collection and disappeared with over $1.3 million, failing to fulfill the promises of utility they made to investors. 

Can New York still become a digital assets hub? 

This is not the only digital assets-related bill being pushed in the state. New York is also on its way to becoming one of the first states to ban proof-of-work (PoW) block reward mining. 

Members of the New York State Assembly’s Environmental Conservation Committee voted in favor of a bill that targets mining operations in the state. The bill is now being considered by the entire Senate and Assembly and could see New York driving out PoW block reward mining companies from the state. 

Despite the progress the regulation is making, the executive arm of the State is still determined to make New York a digital assets hub in the U.S. The governor of New York, Eric Adams, has stated that he plans to make the state welcoming to companies in the space despite not supporting mining. 

Watch: SEC Commissioner Hester Peirce on Bitcoin Association’s Blockchain Policy Matters