S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                    944
 
                        2023-2024 Regular Sessions
 
                           I N  A S S E M B L Y
 
                             January 11, 2023
                                ___________
 
 Introduced  by M. of A. VANEL -- read once and referred 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
 A. 944                              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;
 A. 944                              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.
 A. 944                              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.