BILL NUMBER: S5473

SPONSOR: COMRIE
 
TITLE OF BILL:

An act to amend the financial services law, in relation to requiring
certain disclosures in advertisements involving virtual tokens

 
PURPOSE OR GENERAL IDEA OF BILL:

Requires certain disclosures in advertisements involving virtual tokens.
 
SUMMARY OF SPECIFIC PROVISIONS:

Section 1(1) defines different terms relating to virtual tokens as well
as the definition of an advertisement.

Section 1(2) creates the requirement that persons who advertise security
tokens be required to disclose the amount of money they were paid for
the advertisement and, if the payment is of a certain nature, as ,speci-
fied by the act, then that must be disclosed as well.

Section 1(3) places an affirmative duty on the advertiser to use reason-
              

able efforts to determine whether the security tokens paid to him or her
was created by the same developer or is intended to increase in conjunc-
tion with the advertisement of the security token provided to the adver-
tiser.

Section 1(4) describes the form of disclosure for advertisements and the
specific rules that advertisers must follow in order to be in compliance
with the law.

 
JUSTIFICATION:

There has been a flood of new, unregulated virtual tokens that resemble
securities and that have been placed on the open market for unwitting
investors to invest large sums of money into in the hopes of a signif-
icant price increase. Although most of these tokens are advertised as
investment opportunities, many people invest in them without fully
understanding what they are investing in. The majority of the time,
these security tokens are created by small groups of anonymous individ-
uals who have complete control over the price of the security tokens,
either through their ability to cease technical support or to sell a
large portion of the supply all at once to make substantial profits.

The use of public figures to promote a security token is a common strat-
egy used to garner interest in the security token. These public figures
are frequently compensated in the same security tokens created by the
developers, in the hopes that their promotion of the security token will
cause the price to increase rapidly - sometimes by 10,0001 or more in a
single day - and net the advertiser a large sum of money.  Users are
unaware of the amount of money paid to the advertiser, even when they
are compensated with other forms of consideration such as money, leaving
them with very little information about why the advertiser is advertis-
ing the security token.

Advertisers of securities, such as stocks, must already disclose the
amount of consideration they were paid under federal anti-touting laws,
and it is time for virtual tokens that act as securities to be subjected
to the same rules.
It is not enough for security token advertisers to state that their
advertisement is in fact an advertisement to safeguard investors.
Instead, to protect investors from being misled by security token adver-
tisers, it is critical for such advertisers to disclose the amount they
were paid, whether their purchase will directly result in the advertiser
making money on the security token, and the number of security tokens
they received. If prospective investors learn that an advertiser was
compensated in the form of security tokens or other forms of compen-
sation for their advertisement, they may or may not be hesitant to put
their hard-earned money into such an investment.  Regardless of the
decision they end up making, it is every investor's right to have the
information necessary to make that decision in the first place.

 
PRIOR LEGISLATIVE HISTORY:

2024: S360 (Thomas)/ no same as

2021: S.9410 (Thomas) / A.9029-A (Vanel) - Referred to Banks.

 
FISCAL IMPLICATIONS:

To be determined.

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