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Pump.fun, a popular memecoin generator, has found itself at the center of a new class action lawsuit accusing the company and its executives of violating U.S. securities laws. The lawsuit, filed on January 30, 2025, in the Southern District of New York, claims that Pump.fun generated nearly $500 million in fees while offering unregistered securities. This legal battle raises questions about the status of memecoins and the broader crypto landscape's regulatory future.
Allegations of Securities Violations and False Promises
The lawsuit targets Pump.fun and its operators, including Baton Corporation Ltd (which runs Pump.fun) and key figures Alon Cohen, Dylan Kerler, and Noah Bernhard Hugo Tweedale. Plaintiff Diego Aguilar alleges that he suffered financial losses after purchasing several tokens on the platform, including the Fwog token and Griffain (GRIFFAIN). These tokens, which were aggressively marketed through memecoin culture and promises of rapid returns, saw high valuations despite their volatility.
Aguilar claims the tokens were promoted by Pump.fun with exaggerated promises of exponential profits. For instance, the Fwog token was marketed as having a $500 million market cap, but the reality was far different, with many investors suffering significant losses.
Pump.fun’s “Ponzi-like” Structure
The legal complaint accuses Pump.fun of operating a platform that “co-issues and markets unregistered securities.” It further describes the company’s activities as a new form of Ponzi and pump-and-dump schemes. According to the lawsuit, Pump.fun used influencers to generate artificial hype and urgency around highly volatile memecoins, causing retail investors to make hasty, uninformed purchases.
The lawsuit also claims that Pump.fun had full control over the technical infrastructure, liquidity, pricing, and promotion of the tokens sold on its platform, making the company an issuer and statutory seller under U.S. securities law.
Legal Repercussions: Securities Act Violations
The lawsuit highlights that Pump.fun’s operations allegedly violate the Securities Act by offering tokens that should be classified as securities but are instead marketed without the required registration. The plaintiff seeks relief in the form of rescission of all token purchases, monetary damages, and litigation costs.
This lawsuit is part of a growing legal wave against crypto platforms engaging in questionable activities. Another case filed earlier this month by Burwick Law on behalf of Kendall Carnahan targeted Pump.fun over the sale of its Peanut the Squirrel Token, further increasing the pressure on the platform.
The SEC's Changing Approach to Crypto Regulation
The U.S. Securities and Exchange Commission (SEC) is currently grappling with how to classify digital assets, particularly memecoins like those offered by Pump.fun. While the SEC has historically been hesitant to classify many crypto tokens as securities, the question remains unresolved. Under the newly elected administration of President Donald Trump, the SEC has indicated it may take a more active role in regulating crypto by forming a crypto task force. This task force is tasked with establishing clearer guidelines for digital assets, which could have a significant impact on the ongoing legal battles involving crypto companies like Pump.fun.
One of the key issues in this case is the legal classification of memecoins. An argument has emerged that memecoins are explicitly excluded from being considered securities under the 1987 Securities Exchange Act amendment. In fact, a similar case in 2019 involving Dogecoin derivatives resulted in the SEC losing its battle to classify them as securities.
Controversies and Legal Struggles
In addition to its legal battles, Pump.fun has faced controversies related to its platform features. Most notably, in November 2024, the platform introduced a livestream function that was quickly misused by users to broadcast disturbing content, including graphic violence and inappropriate footage. This led to public backlash, forcing the platform to disable the feature.
Pump.fun has also been scrutinized by the U.K. financial regulator, which issued a warning against the platform last March. In response, Pump.fun banned users from the U.K. in an attempt to comply with regulatory demands. Despite these controversies, the company’s business model continues to generate significant fees and attention in the crypto community.
The Road Ahead for Pump.fun and Its Investors
Pump.fun’s recent legal troubles are part of a larger shift in the crypto industry, where regulatory scrutiny is intensifying. As the SEC and other regulatory bodies work to establish clearer rules for the crypto market, platforms like Pump.fun could face even greater challenges.
For investors, this lawsuit highlights the risks associated with memecoins and platforms that promise quick profits. As more lawsuits pile up against crypto companies, it’s crucial for investors to remain cautious and informed. The growing legal attention on memecoin platforms may eventually prompt a more robust regulatory framework for the industry, but for now, Pump.fun’s future remains uncertain.