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Max Burwick has run a boutique law firm focused on crypto since 2021. In a recent video call from his office in midtown Manhattan, Burwick said he’s started seeing an influx of cases from clients who lost money on memecoins.
Burwick started hearing memecoin complaints over the past three months, and the trend has “increased significantly” over the past few weeks.
“Did you lose money on $FRIEND? You may be entitled to compensation,” Burwick Law wrote on social media after the creators of the crypto social app friend.tech seemingly walked away from the project.
He doesn’t see the new raft of memecoin clients slowing down either.
“I would say we’re gonna see a dramatic increase” in the future, Burwick said.
Speculative investments that lead to lost funds and eventual lawsuits have been a part of every crypto market cycle, and this cycle’s iteration of that may come from memecoins.
This year’s unique memecoin flavor is being driven by the token launchpad pump.fun, which has generated at least $1 million in revenue each of the past five days. Pump’s original promise was to prevent rug pulls, which are a type of scam where a project’s creators abscond with raised funds and leave promised tokens or NFTs valueless. Pump.fun launches don’t allow for pre-sales or team allocations that could mislead investors, so while you’re still in a casino, at least it’s a fair casino, the thinking goes.
Still, B-list celebrities might want to be careful when launching memecoins.
Burwick said he feels “highly optimistic” in his attempt to recover assets in some pending cases. That’s because “you have a pretty clear establishment of the Howey test for at least 50% of the memecoins that are issued.”
Courts use the Howey test to determine if tokens are securities. Under securities law, issuers can be in legal trouble, as can “statutory sellers” — a label that has been slapped on some crypto folk who promote ill-fated investments. Howey holds that securities involve an investment of money with the expectation of profit from a common enterprise reliant on the efforts of others. Some in crypto take issue with the “efforts of others” portion of this, since blockchains are decentralized, and anyone can participate in them.
But this may look different when celebrities get involved, Burwick said, citing an ongoing suit against Shaquille O’Neal which claims Big Diesel was a statutory seller for a failed NFT project.
“I can certainly tell you if it’s a celebrity memecoin and you’re asking, ‘Is this token going to go up from the efforts of others?’ I would think that the answer becomes pretty obvious,” Burwick said.
Still, the infinite memecoin world we’re currently living in feels novel, and how courts might respond is still something of an open question. In Burwick’s view, court actions pertaining to NFTs might give an indication.
“NFT cases…pretty much laid out exactly the way the courts are going to interpret this,” Burwick said.