The New York Department of Financial Services would have stronger authority to regulate digital assets, with exchanges having to reimburse customers if they’re the victims of fraud, under a bill proposed by Attorney General Letitia James. In recent months James has taken actions involving crypto companies Celsius, KuCoin and Nexo, claiming a number of crypto tokens are commodities or securities despite a considerable gray area over the scope of existing law, and the bill would also give her extra enforcement powers.
“We’re proposing commonsense measures to protect investors and end the fraud and dysfunction that have become the hallmarks of cryptocurrency,” James said.
Investors would be offered details of risks and conflicts of interest, and crypto companies wouldn’t be able to borrow or lend customers’ assets, the tweet said.
In March, James’ suit against KuCoin claimed that tokens including ether (ETH) constitute securities that should have been registered with her office, and in a case against CoinEx made similar claims about the LUNA token connected with the now-defunct stablecoin terraUSD. The bill must still be passed by state lawmakers for it to become state law.
Earlier this week, Alex Mashinsky, the founder of Celsius, denied claims by James that he had misled investors about the crypto lender before it filed for bankruptcy last year, saying that James had cherry picked statements made to investors.
Andrew Hinkes, a partner at law firm K&L Gates, tweeted that the bill was “destined to fail” because it misunderstood crypto. It won’t be possible to apply the provisions to decentralized organizations, and the market doesn’t exist to offer the kind of auditing or insurances James is proposing, Hinkes said.