Sen. Thomas proposes to criminalize rug pulls and other crypto frauds

Key Takeaways

  • Senator Kevin Thomas of New York presented a new bill amendment to create various penalties relating to rug pulls and other frauds.
  • Private key fraud is the unauthorized disclosure or use of another person’s private keys. 
  • The law also seeks to prosecute developers with fraud for failing to disclose a stake in digital currencies.

Rug pulls have become a problem of decentralized finance, robbing users of hundreds of millions of dollars. Numerous lawmakers have taken aim at them and have attempted to criminalize them in the US since they are among the most common types of fraud.

The rug pull is a type of swindle in which the team steals funds from investors by reducing the liquidity of the trading pool, eventually leaving holders with illiquid tokens that cannot be redeemed.

Senator Kevin Thomas of New York presented an additional bill amendment request to include new offenses involving rug pulls, misuse of private keys, and disguised stakes in cryptocurrency companies.

Senator Thomas’s Senate Bill S8839 proposes identifying, penalizing, and criminalizing scams aimed directly at developers and businesses aiming to mislead cryptocurrency investors.

The goal of Thomas’ bill is to provide prosecutors with a clear legal framework for pursuing cryptocurrency offenses in accordance with the blockchain’s ethos while preventing fraud. 

It recommends a legislative change that would penalize developers who sell “more than 10% of such tokens within five years of the date of such tokens’ last sale.”

When private keys are exposed or misused without a person’s consent, it is called private key fraud. The bill also proposes punishing developers with fraudulent failure to reveal an interest in digital tokens if they fail to publicly disclose personal cryptocurrency holdings on the main page of their primary website.

Representatives Norma Torres of California and Rick Crawford of Arkansas have sponsored legislation to minimize the financial risks associated with El Salvador’s adoption of Bitcoin (BTC) as legal cash. According to Cointelegraph, the proposed legislation aims to assess the risks to El Salvador’s “cybersecurity, economic stability, and democratic administration.” 

Torres claims that: “El Salvador is an independent democracy, and we defend its right to self-government.” “However, the US must have a plan in place to protect our financial institutions from the dangers connected with this decision.”

The bill intends to impose a 10% threshold on developers who sell within five years of the last sale: “A developer, whether natural or artificial, commits illegal rug pulling when he or she creates a class of virtual token and sells more than 10% of such tokens within five years of the last sale of such tokens.”

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Baisakhi Mishra

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