Pump.fun, a popular memecoin generator, has become the subject of a class action lawsuit accusing the company and its executives of violating U.S. securities laws.
Allegations of Securities Violations and False Promises
The lawsuit, filed in the Southern District of New York on January 30, 2025, claims that Pump.fun generated nearly $500 million in fees by offering unregistered securities. The lawsuit targets Pump.fun and its operators, including Baton Corporation Ltd and key figures Alon Cohen, Dylan Kerler, and Noah Bernhard Hugo Tweedale, alleging financial harm to Diego Aguilar. Aguilar claims he suffered losses from purchasing tokens like the Fwog token and Griffain, which were promoted with exaggerated promises of returns. For instance, the Fwog token was marketed as having a $500 million market cap, but many investors experienced significant losses.
Pump.fun’s “Ponzi-like” Structure
This lawsuit is part of a growing wave of legal actions against crypto platforms engaged in questionable practices. Another case was filed by Burwick Law on behalf of Kendall Carnahan concerning the sale of the Peanut the Squirrel Token by Pump.fun, further increasing pressure on the platform. The legal complaint accuses Pump.fun of operating a platform that 'co-issues and markets unregistered securities,' describing its activities as a new form of Ponzi and pump-and-dump schemes. According to the lawsuit, Pump.fun used influencers to artificially hype and create urgency around highly volatile memecoins, prompting retail investors to make hasty, uninformed purchases.
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. 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 indicated it may take a more active role in regulating crypto by forming a crypto task force. One of the key issues in this case is the legal classification of memecoins. There is an argument 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.
In addition to its legal battles, Pump.fun has faced controversies related to platform features. Notably, in November 2024, a livestream function was misused for inappropriate content, prompting public backlash and disabling the feature. Pump.fun has also been scrutinized by the U.K. financial regulator, following which the company banned U.K. users to comply with regulatory demands.
