New York proposes law to tackle rug pulls and private key theft

The New York State Assembly has introduced a bill targeting crypto fraud such as rug pulls and private key thefts.

The bill proposed on 5 March criminalizes rug pulls and unauthorized access to private keys with severe penalties including up to $25 million in fines.

Tackling crypto fraud

Crypto fraud has been on rampage recently, with the accounts of famous personalities getting hacked to promote fake projects.

These projects often lead to rug pulls (developers withdrawing liquidity) or the theft of private keys which can lead to crypto theft.

It is for this situation that Assembly member Clyde Vanel introduced the new bill aimed at curbing deceptive practices.

The bill seeks to amend the state’s penal law by establishing criminal penalties for fraudulent activities related to virtual tokens, including rug pulls, private key fraud, and failure to disclose financial interests in digital assets.

The bill proposes that developers selling more than 10% of a virtual token’s total supply within five years of the last sale could face prosecution for rug pulls, with exceptions for smaller NFT projects.

It states that:

“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 ten percent of such tokens within five years from the date of the last sale of such tokens,” according to the bill’s text.

The bill also makes it mandatory for developers to publicly disclose their token holdings on their primary website to enhance transparency.

Similarly, unauthorized access or misuse of private keys would be criminalized unless explicit consent is given.

Making crypto safer

Through this bill, New York lawmakers seek to make the crypto space safer for investors while holding fraudsters accountable.

If passed into law, the conditions will come into force 30 days later, with provisions for regulatory bodies to implement enforcement measures before the effective date.