New York’s top law enforcement officer is targeting the cryptocurrency markets with a new legislative proposal to increase transparency and protect consumers from risky investments.
The proposal by Attorney General Leticia James would, if approved by the state Assembly, set “first in-the-nation” regulations for crypto trading to reduce potential conflicts of interest, require public reporting of financial statements by crypto companies and beef up the state’s consumer protection laws by including investors in the crypto industry.
James said the new regulations will “bring more transparency and oversight to the industry and strengthen our ability to crack down on those that don’t pay respect to the law.”
“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry,” she said in a statement. “New York investors should have the peace of mind that there are safeguards in place to protect them and their money.”
The Crypto Regulation, Protection, Transparency, and Oversight Act would also give the attorney general the authority to issue subpoenas and civil penalties ranging from $10,000 to $100,000 for each violation.
The bill would also codify the New York State Department of Financial Services’ authority to license digital asset brokers, marketplaces, investment advisors and crypto issuers.
New York City Comptroller Brad Lander said the proposal would address the “urgency for greater oversight of the crypto industry” while “building a legal framework to protect New Yorkers and the economy from predatory companies.”
“The lack of transparency plaguing the crypto industry causes immense harm to countless investors, especially low-income New Yorkers and people of color who carry a disproportionate share of the losses,” Lander said. “We cannot let the crypto industry operate without a basic infrastructure for accountability.”
John Stark, founder and former Chief of the Securities and Exchanges Commission’s Office of Internet Enforcement, said James’ cryptocurrency legislation “sets the standard for all U.S. states and territories on how to regulate the fledgling cryptocurrency industry.”
“This legislation brings much needed oversight to the industry and raises the bar, ensuring that investor protection remains paramount,” he said.
The multi-billion dollar crypto industry has been the target of federal and state policymakers who argue that it lacks robust regulations, making it prone to dramatic market fluctuations, and is being used to conceal and facilitate criminal activities and fraud.
Several other states have considered adopting similar laws to protect investors and set new regulations on the industry. Members of Congress have also been pitching plans to set federal regulations on crypto-traders and companies.
In December, federal prosecutors charged Samuel Bankman-Fried, founder and former CEO of cryptocurrency exchange FTX, with a litany of financial crimes, alleging he deceived clients and investors and played a key role in the company’s multibillion-dollar collapse.
Meanwhile, the founder of a Las Vegas-based cryptocurrency company was sentenced in February to more than eight years in prison after authorities say he cheated investors of more than $7.5 million in a “ponzi-like” scheme.
In the past year, James has targeted several cryptocurrency companies, including Celsius founder Alex Mashinsky, who state prosecutors allege provided misleading information that allowed investors to lose billions of dollars.
“Many crypto firms fail to meet even basic investor protection standards set by regulators for traditional finance, and often have business models rife with conflicts of interest, Mark Hays, a senior policy analyst at Americans for Financial Reform, said in a statement. “This legislative proposal seeks to make it clear these firms can’t continue with business as usual, and must play by the same rules as other financial firms.”