Requires certain disclosures by a developer of virtual tokens in advertisements involving such virtual tokens; provides restrictions concerning advertising.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A938
SPONSOR: Vanel 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 defines virtual tokens.
Section 2 creates a new section in the financial services law.
Section 2(a) requires certain disclosures in the advertising of virtual
tokens.
Section 2(b) creates restrictions on false, misleading, or deceptive
advertising in relation to virtual tokens and other financial products
or services.
Section 2(c) provides that a statement or representation is false,
misleading, or deceptive if a person states that they are legally
authorized to offer residents of New York virtual tokens or other finan-
cial products or services and they are not authorized.
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 10,000% 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 feder-
al 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:
1/21/22 referred to science and technology, 5/10/22 referred to codes,
5/17/22 referred to rules, 5/25/22 passed assembly, 5/24/22 vote recon-
sidered - restored to third reading
FISCAL IMPLICATIONS:
To be determined.
EFFECTIVE DATE:
This act shall take effect immediately.
STATE OF NEW YORK
________________________________________________________________________
938
2023-2024 Regular Sessions
IN ASSEMBLY
January 11, 2023
___________
Introduced by M. of A. VANEL -- read once and referred to the Committee
on Science and Technology
AN ACT to amend the financial services law, in relation to requiring
certain disclosures in advertisements involving virtual tokens
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Subdivision (a) of section 104 of the financial services
2 law is amended by adding a new paragraph 6 to read as follows:
3 (6) "Virtual token" shall mean any interchangeable or non-interchange-
4 able unit of data that is stored on any blockchain ledger which shall
5 include, among other digital units that the superintendent determines to
6 be virtual tokens in accordance with this definition, cryptocurrencies,
7 virtual currencies, digital assets and digital tokens, whether fungible
8 or non-fungible. Virtual tokens shall not be construed to include any of
9 the following:
10 (A) digital units that: (i) are used solely within online gaming plat-
11 forms; (ii) have no market or application outside of those gaming plat-
12 forms; (iii) cannot be converted into, or redeemed for, fiat currency or
13 virtual currency; and (iv) may or may not be redeemable for real-world
14 goods, services, discounts, or purchases;
15 (B) digital units that can be redeemed for goods, services, or
16 purchases as part of a customer affinity or rewards program with the
17 issuer and/or other designated merchants or can be redeemed for digital
18 units in another customer affinity or rewards program, but cannot be
19 converted into, or redeemed for, fiat currency or other virtual curren-
20 cy; or
21 (C) digital units used as part of prepaid cards.
22 § 2. The financial services law is amended by adding a new section 410
23 to read as follows:
24 § 410. Restrictions concerning advertising. (a) No person shall, in
25 any manner, advertise, print, display, publish, distribute, or broad-
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD01643-01-3
A. 938 2
1 cast, or cause or permit to be advertised, printed, displayed,
2 published, distributed, or broadcasted, any statement or representation
3 with regard to any virtual token for consideration without disclosing
4 the amount of consideration, whether past or prospective, direct or
5 indirect, and the nature thereof.
6 (b) No person shall, in any manner, advertise, print, display,
7 publish, distribute, or broadcast, or cause or permit to be advertised,
8 printed, displayed, published, distributed, or broadcasted, any state-
9 ment or representation with regard to any virtual token or other finan-
10 cial product or service if such statement or representation is, in any
11 manner, false, misleading or deceptive.
12 (c) For the purposes of this section and without limiting subdivisions
13 (a) and (b) of this section, a statement or representation shall be
14 false, misleading and deceptive if it states or implies, directly or
15 indirectly, that a person is authorized legally to offer or provide in
16 New York state or to New York state residents a virtual token or other
17 financial product or service, and such person is not so authorized.
18 § 3. This act shall take effect immediately.
