Pump.fun, recognized as one of the most thriving cryptocurrency initiatives of the previous year, is now facing a class action lawsuit for purported breaches of securities regulations.
The lawsuit particularly cites the distribution of the well-known meme coin Peanut the Squirrel (PNUT) as illegal. Although the single plaintiff asserts a loss of just $231, they are advancing the claim on behalf of a significantly larger cohort.
Filed on Thursday in the Southern District of New York, the legal action asserts that Pump.fun has been distributing and selling an unregistered security due to negligence or strict liability. It does not accuse the founders of the project of committing fraud or engaging in intentional or reckless behavior, yet it still seeks to hold them responsible.
The legal filing requests a jury trial in New York.
“Our complaint contends that Pump.fun positions itself as promoting financial independence and resistance to censorship,” Burwick Law, the firm behind the lawsuit, announced on X. “However, in reality, it has showcased racist, antisemitic, abusive, and sexual content on its homepage, taking advantage of the aspirations of ordinary individuals—including minors—to amass hundreds of millions of dollars in fees.”
The defendants include UK entity Baton Corporation Ltd, which the lawsuit accuses of operating under the name Pump.fun, along with its founders: Alon Cohen, Dylan Kerler, and Noah Bernhard Huge Tweedale (commonly known as Sapijiju).
Only one plaintiff, Kendall Carnahan, is identified in the lawsuit. They are represented by attorneys from Wolf Popper LLP and Burwick Law—the same firm that recently filed a claim against the creators of the Hawk Tuah token. Nonetheless, the plaintiff asserts that there could be “hundreds or thousands” of victims adversely affected by PNUT, and the lawsuit has been lodged on behalf of all similarly impacted Pump.fun users.
“This is customary in securities class actions, where a representative plaintiff pursues claims for a broader group affected by the same alleged unlawful activities,” Carlo D’Angelo, a defense lawyer for cryptocurrency criminals, stated to Decrypt. If the lawsuit succeeds, it would be seeking significantly more than Carnahan’s individual losses.
Carnahan alleges to have purchased PNUT through three transactions on November 4. The following day, they sold it for a loss of merely $231. PNUT subsequently soared by over 4,134% in the subsequent nine days, reaching a market cap of $2.4 billion.
Neither Cohen nor Tweedale provided an immediate reply to Decrypt’s inquiry for comment.
Developers or founders?
To initiate a token on the launchpad, users only need to complete a few fields before optionally acquiring some tokens. This process consequently generates a token using Pump.fun’s standardized contracts. The lawsuit argues that this indicates the platform and its founders, rather than the token deployers or developers, are accountable.
“Token developers on Pump.Fun act merely as participants within Pump.Fun’s restrictive framework rather than independent issuers,” the lawsuit stated. “Pump.Fun retained centralized control over the token marketing, exchange listings, and market operations,” the document later clarifies.
With this streamlined token creation method, over 6 million tokens have been generated via the platform in its year-long duration—accounting for up to 71%
of fresh tokens introduced on Solana monthly. Consequently, Pump.fun has generated exceeding $420 million in earnings—accumulated via transaction fees.
The lawsuit asserts that once a token reaches a “particular degree of achievement,” the platform starts to promote particular tokens, with PNUT being a notable illustration. Nevertheless, Decrypt only identified two tweets mentioning “Peanut” or “PNUT”—one of which extended congratulations on reaching a $1 billion market cap.
Moreover, the lawsuit contends that Pump.fun’s architecture endorses “child exploitation, potentially underage pornography, antisemitism,” and other issues, as individuals strive to elevate their token’s value through provocative maneuvers. This is most clearly demonstrated by the Pump.fun developer who ignited himself on fire for his TruthOrDare (DARE) token in an effort to boost his token’s value. Mikol, the developer, was swiftly transported to a hospital with third-degree burns covering his body.
Exhibit B of the lawsuit outlines 12 Pump.fun tokens that are either discriminatory, harmful, or perilous in character. It asserts that Pump.fun intentionally enables and promotes tokens that take advantage of hate speech, violence, and abuse to drive trading activity.
How have cryptocurrency enthusiasts reacted? They have invested in these tokens, of course, with one trader claiming to be up $8,000 within just two hours.
One of the mentioned tokens displays a woman in her underwear restrained to a chair, with the token creator alleging they’d engage in sexual activities once the token reached a $100,000 market cap. This occurred amid a troubling trend of livestreaming that witnessed multiple contentious streams go viral, culminating with someone pretending to commit suicide before that feature was removed from the platform.
While this is shocking, the lawsuit further claims that the site neglects to enforce fundamental investor safeguards relevant to this context. Specifically, there is no age verification on the platform with various tokens available that are inappropriate for underage users—despite the presence of a not safe for work label. Additionally, there is a lack of know-your-customer, anti-money-laundering, or risk disclosures on the site.
This is not the first instance of Pump.fun encountering controversy.
In May, it was defrauded of approximately $2 million worth of Solana by a disgruntled former employee who had issues with the company’s operations. Jarett Dunn, the former employee, faces accusations of misuse of authority and transfer of illicit property at Wood Green Crown Court, from which he is seeking to retract his guilty plea.
After the livestreaming scandals, the UK regulator the Financial Conduct Authority issued a caution against the platform. This resulted in Pump.fun limiting access for users from the UK.
Revised by Stacy Elliott.
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