New York lawmakers are taking a hard stance against cryptocurrency fraud with a new bill aimed at cracking down on rug pulls—scams where insiders abandon a project and drain investor funds.

Assemblymember Clyde Vanel introduced Bill A06515 on March 5, proposing new criminal penalties for "virtual token fraud." If passed, the law would make deceptive crypto practices explicitly illegal, offering stronger protections for investors caught in fraudulent schemes.

The bill defines “virtual tokens” broadly, covering security tokens and stablecoins. It also includes fungible and non-fungible tokens stored on decentralized networks. This legislative move follows increasing investor frustration, especially after the collapse of the Libra token—endorsed by Argentine President Javier Milei—where insiders allegedly siphoned $107 million in liquidity, causing a 94% price drop and erasing $4 billion in investor capital.

Solana-based memecoin scams have further fueled concerns, triggering a crypto exodus from riskier assets. In February alone, Solana saw over $485 million in outflows as investors sought safer alternatives.

Regulators and industry leaders warn that rug pulls are not just unethical but outright illegal. Anastasija Plotnikova, CEO of blockchain compliance firm Fideum, emphasized that law enforcement should take action against these scams, as existing case law already supports prosecution.

Adding to the controversy, recent reports suggest the Libra scam was an “open secret” in insider circles, with some members of the Jupiter decentralized exchange allegedly knowing about its launch weeks in advance.

As crypto fraud reaches new heights, New York’s legislative push could set a precedent for tougher regulations across the U.S. The crackdown signals a growing effort to hold bad actors accountable in the ever-evolving digital asset space.