Pump.Fun Faces Allegations of Unleashing ‘Unregistered Securities’ in the Memecoin Arena – DL News

Racist material. Offensive livestreams. Inflating tokens lacking fundamental worth.

In a lawsuit submitted on Thursday, a plaintiff referenced several alarming aspects of Pump.Fun’s one-click launchpad for memecoins.

But what is Pump.Fun’s purported major fault?

Selling its tokens without proper registration with the US Securities and Exchange Commission, according to the plaintiff in a class action filed in federal court in New York. The case demands unspecified compensation.

“Pump.Fun’s primary role is collaborating with influencers to jointly issue and promote unregistered securities,” stated the lawsuit.

Alon Cohen, the chief operating officer of the company, did not respond to a request for comment from DL News.

Euthanized squirrel

The legal claim asserts that Baton Corp, the proprietor of Pump.Fun, alongside the three co-founders of the memecoin venture, breached US securities regulations concerning one particular token: PNUT, named after a pet squirrel euthanized by officials in New York state last year.

It also charges them with involvement in pump-and-dump schemes and profiting from “racist, antisemitic, torture, and sexual content,” although these allegations are not cited as legal violations.

Pump.Fun was established in January 2024 by Cohen, Dylan Kerler, the chief technical officer, and Noah Bernhard Hugo Tweedale, the chief executive officer.

Headquartered in the UK, the initiative contributed to a surge in memecoin trading by streamlining the creation process for these humorous tokens.

Previously, aspiring memecoin creators had to possess coding knowledge. With Pump.Fun, they simply needed to select a name for the token.

Memecoin surge

Consequently, Pump.Fun has made a significant impact in a $127 billion market that until recently operated as a loose frontier with minimal structure.

Thousands of memecoins are launched daily on Pump.Fun, and it has accumulated $2.2 billion in fees, based on an estimate by Dune.

The plaintiff in this case is echoing the same argument that the SEC has employed against various crypto platforms under Gary Gensler, its outgoing chair, over the past four years.

The regulator has asserted that the majority of cryptocurrencies must adhere to the same regulations that govern the issuance of stocks and bonds, which includes registration.

The crypto sector has contested these claims and is optimistic that President-elect Donald Trump will halt the SEC’s enforcement actions once he assumes office on Monday.

In this instance, the plaintiffs have narrowed their focus to a specific memecoin: PNUT, which was named after a pet squirrel euthanized by New York state officials last year.

When he was captured on October 30 — owning wild animals is prohibited in New York — P’Nut the squirrel bit a wildlife biologist and had to be tested for rabies. The rabies assessment can only be conducted on deceased animals.

Crypto enthusiasts, including Elon Musk, condemned the squirrel’s demise as an overreach by the government.

PNUT entered the market on October 31, and its market capitalization rocketed to $2 billion by the following month. According to the lawsuit, Pump.fun facilitated the launch of PNUT.

One trader struck it rich, earning $3 million by trading PNUT tokens that were initially bought for $17.

However, numerous memecoin traders face challenges in accurately timing the extreme volatility associated with such tokens. PNUT has lost 75% of its value since that peak in November.

Degrading actions

The lawsuit highlights another issue that has stirred controversy around Pump.Fun in recent months: a livestream feature that enabled memecoin issuers to stream videos of themselves.

Intended as a means to generate excitement and enhance the value of the coins, it quickly devolved into something quite different.

Memecoin creators performed humiliating acts and even threatened their pets, while one creator claimed he would commit suicide if people did not purchase his cryptocurrency. This was later revealed to be a staged stunt, according to DL News in November.

Pump.Fun removed the livestreaming feature from its site that month.

Aleks Gilbert is a New York-based DeFi correspondent for DL News. You can reach him at aleks@dlnews.com.