Illinois General Assembly - Full Text of HB5427
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Full Text of HB5427  102nd General Assembly

HB5427 102ND GENERAL ASSEMBLY

  
  

 


 
102ND GENERAL ASSEMBLY
State of Illinois
2021 and 2022
HB5427

 

Introduced 1/31/2022, by Rep. Deanne M. Mazzochi

 

SYNOPSIS AS INTRODUCED:
 
205 ILCS 730/2 new
205 ILCS 730/25 new
205 ILCS 730/30 new

    Amends the Blockchain Technology Act. Sets forth provisions concerning the purpose and findings of the Blockchain Technology Act. Provides that a court shall permit discovery of electronic records if the existence or ownership of a digital asset secured by a blockchain is factually in dispute. Sets forth provisions concerning permissible discovery of facts and information concerning digital assets and discovery procedures for digital assets. Provides that a court may order that the party with ownership or control over an account generate a test transaction in an amount not to exceed $1 to prove ownership or control over the account. Provides that a party holding a digital asset where the nature and type of the digital asset is at issue in the case may shield the need for disclosure if it posts security with the court for a comparable value for the digital asset in question if the value of the digital asset can be assessed, or for a value that is reasonably correlated to the estimated value of any judgment. Provides that a party seeking to validate or challenge the nature, accuracy, or propriety of a vote taken in connection with a decentralized autonomous organization shall be allowed discovery sufficient to describe the nature and type of vote or votes being taken. Provides that the provisions are repealed 5 years after the effective date of the amendatory Act. Creates the Digital Asset Discovery Task Force to conduct a review of the court-ordered discovery of digital asset procedures. Sets forth provisions concerning the Task Force's members, administrative support, and compensation. Provides that the Task Force shall submit a report containing its findings and any recommendations to the Supreme Court and the General Assembly by January 1, 2023. Provides that the Task Force is dissolved on January 1, 2024. Effective immediately.


LRB102 25014 BMS 34271 b

 

 

A BILL FOR

 

HB5427LRB102 25014 BMS 34271 b

1    AN ACT concerning regulation.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Blockchain Technology Act is amended by
5adding Sections 2, 25, and 30 as follows:
 
6    (205 ILCS 730/2 new)
7    Sec. 2. Purpose and findings. The purpose of this Act is to
8create general standards for authenticating, identifying, and
9validating blockchain-based digital assets.
10    The General Assembly finds that to encourage innovation
11and use of digital assets, including cryptocurrency, it is
12necessary to provide rudimentary protection to consumers who
13may seek to acquire or use such digital assets, or use them for
14payment purposes in commercial transactions. The procedures in
15this Act recognize that the significant intangible nature of
16digital assets, as well as decentralized decision making, will
17place burdens on parties seeking discovery and information in
18association with digital assets. At the same time, courts
19should not overly burden digital asset holders and individuals
20or organizations who hold or manage them with production
21obligations that risk being disproportionate to the needs of a
22case, or to abusive discovery that may damage the value of the
23digital asset that may be in dispute.
 

 

 

HB5427- 2 -LRB102 25014 BMS 34271 b

1    (205 ILCS 730/25 new)
2    Sec. 25. Court-ordered discovery of digital assets.
3    (a) If the existence or ownership of a digital asset
4secured by a blockchain, whether in the form of a smart
5contract, record, signature, or cryptocurrency, is factually
6in dispute, a court shall permit discovery, subject to
7reasonable time and scope constraints and the relevance to
8disputed issues and needs in the case pertaining to facts or
9legal disputes pertaining to the elements of the claim, as
10follows:
11        (1) The identity of a person who can authenticate a
12    digital ledger and the process for generating the digital
13    ledger. If no such person can be found within the
14    jurisdiction of the State of Illinois, a party seeking
15    discovery may compel the party holding the digital asset
16    to identify a person who is prepared to authenticate the
17    digital ledger and procedural protocols for assessing the
18    trustworthiness of the digital ledger and who shall be:
19            (A) a resident of the State of Illinois;
20            (B) a non-resident who agrees to be subject to the
21        jurisdiction of the court for this limited purpose,
22        and the court may order that appearance for this
23        purpose does not subject the non-resident to Illinois
24        jurisdiction for any other purposes; or
25            (C) if the asset is held or managed by a

 

 

HB5427- 3 -LRB102 25014 BMS 34271 b

1        third-party provider, whether a financial institution,
2        exchange, brokerage, or other legal entity serving as
3        a repository for blockchain records, smart contracts,
4        digital signatures, private keys, or cryptocurrency, a
5        designee of such a third party who is willing to appear
6        in the court's jurisdiction; the court may order that
7        appearance for this purpose does not subject the
8        non-resident to Illinois jurisdiction for any other
9        purpose.
10        (2) The identification of an individual who has
11    possession of a private key capable of transferring or
12    otherwise modifying the digital asset.
13        (3) For cryptocurrency, a general description of the
14    nature and type of private key, including, but not limited
15    to, as the reasonable and proportionate needs of the case
16    may require:
17            (A) A description of whether the private key has
18        been reduced to a physical embodiment, including a
19        handwritten note, QR code, thumb drive, computer
20        drive, or other storage mechanism, and where this
21        physical medium is located. Such information shall be
22        treated as highly confidential trade secret
23        information, and shall not be publicly disclosed
24        unless a court specifically orders otherwise, unless
25        otherwise agreed to in writing by the parties. A court
26        may order that the physical location of the private

 

 

HB5427- 4 -LRB102 25014 BMS 34271 b

1        key be preserved and not moved absent reasonable
2        advance notice to the court and the parties.
3            (B) If the private key is not embodied in a
4        physical form, but only committed to human memory, a
5        court may order that the party holding the private key
6        generate a physical embodiment to secure the asset,
7        post a bond to secure the asset, or place the digital
8        asset in the management of an independent third party
9        qualified to handle digital assets who agrees to be
10        subject to the jurisdiction of the court and to not
11        materially alter the digital asset.
12            (C) An estimated value of the digital asset, if
13        the digital asset may be used to secure a judgment in
14        the case or if the ownership or value of the digital
15        asset itself is in dispute in the case.
16        (4) For cryptocurrency, a court may order that the
17    party with ownership or control over an account generate a
18    test transaction in an amount not to exceed $1 to prove
19    ownership or control over the account. A court may order
20    that the party with ownership or control over the account
21    not modify or transfer the digital asset if the digital
22    asset may be used to satisfy a claim or judgment in the
23    case, or take other reasonable precautions to preserve the
24    value of the digital asset while a case is pending. A court
25    may draw an adverse interest against a party for failure
26    to comply with this paragraph.

 

 

HB5427- 5 -LRB102 25014 BMS 34271 b

1        (5) Whether the digital asset is maintained on a
2    database or cloud service, if known and reasonably
3    accessible based on the needs of the case.
4        (6) The number of persons or parties who have access
5    to the digital asset, if known and reasonably accessible
6    based on the needs of the case, and the nature of that
7    access; and whether the data access requires private
8    permission, is invite only, or has been publicly accessed
9    or trust-tested.
10        (7) The general nature of the validation process for
11    the digital asset, if knowable and reasonably accessible
12    based on the needs of the case, including the criteria for
13    trusted persons, proxies, voting, or other relationships
14    used to secure the integrity of the blockchain.
15        (8) For a digital asset, accounting records or the
16    identification of a person who can describe the nature and
17    contents of the account, if knowable and reasonably
18    accessible based on the needs of the case.
19        (9) A party holding a digital asset where the nature
20    and type of the digital asset is at issue in the case may
21    shield the need for disclosure, notwithstanding the
22    procedures set forth in this subsection, if it posts
23    security with the court for a comparable value for the
24    digital asset in question if the value of the digital
25    asset can be assessed, or for a value that is reasonably
26    correlated to the estimated value of any judgment. The

 

 

HB5427- 6 -LRB102 25014 BMS 34271 b

1    fact that security was posted shall not be admissible
2    before a jury and no inference shall be made against the
3    party merely for posting security in connection with this
4    paragraph.
5        (10) A party seeking to validate or challenge the
6    nature, accuracy, or propriety of a vote taken in
7    connection with a decentralized autonomous organization
8    shall be allowed discovery sufficient to describe the
9    nature and type of vote or votes being taken; the
10    pre-approved protocol to be used for casting a vote in
11    connection with a vote that is reasonably in dispute based
12    on the factual needs and claims in the case; and the
13    identity of an individual within the organization with
14    knowledge, or who can be prepared with the applicable
15    knowledge by those with operational control for the
16    organization, as to the vote protocols and outcomes. The
17    pre-approved written protocol in place at the time of the
18    vote shall be presumed to be the governing protocol, and
19    the burden shall be on the decentralized autonomous
20    organization to demonstrate compliance with the voting
21    protocol, including that the vote, including any vote
22    involving a proxy or a vote through artificial
23    intelligence or machine learning, was valid, accurate, and
24    true under the protocol at the time of the vote.
25    (b) This Section is repealed 5 years after the effective
26date of this amendatory Act of the 102nd General Assembly.
 

 

 

HB5427- 7 -LRB102 25014 BMS 34271 b

1    (205 ILCS 730/30 new)
2    Sec. 30. Digital Asset Discovery Task Force.
3    (a) The Digital Asset Discovery Task Force is created. The
4purpose of the Task Force is to conduct a review of the
5court-ordered discovery of digital asset procedures under
6Section 25.
7    (b) The Task Force shall consist of 15 members as follows:
8        (1) one member appointed by the Speaker of the House
9    of Representatives;
10        (2) one member appointed by the Minority Leader of the
11    House of Representatives;
12        (3) one member appointed by the President of the
13    Senate;
14        (4) one member appointed by the Minority Leader of the
15    Senate;
16        (5) 2 members appointed by the Governor;
17        (6) 2 members appointed by Secretary of Financial and
18    Professional Regulation representing companies in the
19    business of blockchain-based assets; and
20        (7) 7 members appointed by the Justices of the Supreme
21    Court.
22    (c) At the direction of the Supreme Court, the
23Administrative Office of the Illinois Courts shall provide
24administrative support to the Task Force.
25    (d) The Task Force shall submit a report containing its

 

 

HB5427- 8 -LRB102 25014 BMS 34271 b

1findings and any recommendations to the Supreme Court and the
2General Assembly by January 1, 2023.
3    (e) The Task Force shall meet as it deems appropriate.
4    (f) Members of the Task Force shall serve without
5compensation.
6    (g) The Task Force is dissolved on January 1, 2024.
7    (h) The Supreme Court may establish procedural rules
8encouraging fairness and access for blockchain-based digital
9assets.
 
10    Section 99. Effective date. This Act takes effect upon
11becoming law.