New York bill aims to protect crypto investors from memecoin rug pulls

New York lawmakers have introduced legislation aimed at protecting cryptocurrency investors by targeting scams known as rug pulls, where project insiders abruptly abandon a project and drain investor funds.

Assemblyman Clyde Vanel, chair of the New York Assembly’s Banks Committee, introduced Bill A06515 on Wednesday, March 5. The bill would establish criminal penalties specifically aimed at preventing cryptocurrency fraud and protecting investors from what the industry calls “rug pulls” — schemes where project insiders abruptly withdraw investors’ funds and abandon the project.

Under the proposal, new criminal charges would be created for offenses involving “virtual token fraud,” explicitly targeting deceptive practices associated with cryptocurrencies.

“Virtual tokens” refer to security tokens and stablecoins, while “security tokens” include “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.”

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The bill comes shortly after widespread investor disappointment in memecoins, particularly after the launch of the Libra token, which was endorsed by Argentine President Javier Milei.

The project’s insiders allegedly siphoned over $107 million worth of liquidity in a rug pull, triggering a 94% price collapse within hours and wiping out $4 billion in investor capital.

The growing wave of Solana-based memecoin scams led to a crypto capital flight to “safety” which resulted in over $485 million in outflows for Solana during February.

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Rug pulls “should fall firmly within the jurisdiction of law enforcement”

The rise of memecoin-related scams presents significant regulatory challenges, according to Anastasija Plotnikova, co-founder and CEO of blockchain regulatory firm Fideum.

Insider scams and “outright fraudulent activities” like rug pulls, which are “not only unethical but also clearly illegal, with case law to support enforcement,” should see more thorough regulatory attention, Plotnikova told Cointelegraph, adding:

“In my view, these activities should fall firmly within the jurisdiction of law enforcement agencies.” 

More troubling revelations have emerged since the meltdown of the Milei-endorsed Libra token, notably that Libra was an “open secret” in memecoin insider circles and that some members of the Jupiter decentralized exchange knew about the token launch two weeks in advance.

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