Solana Memecoin Platform Pump.fun Sued for Securities Violations and Offensive Content

Popular Solana-based memecoin launchpad Pump.fun is facing a federal class-action lawsuit alleging that the platform engaged in unregistered securities offerings, exploited users, and allowed the circulation of offensive content, including racism and antisemitism, while generating millions in fees.

The lawsuit, filed by Burwick Law and Wolf Popper LLP, raises critical questions about investor protection, platform responsibility, and the boundaries of free speech in the evolving cryptocurrency industry. 

Lawsuit Alleges Pump.fun Operated as Unregistered Securities Exchange

The class-action complaint, filed in the United States District Court for the Southern District of New York (SDNY), accuses Pump.fun of violating federal securities laws by offering and selling unregistered securities.

The lawsuit specifically names the memecoin Peanut the Squirrel (PNUT) as an example of a security offered on the platform without proper registration with the U.S. Securities and Exchange Commission (SEC).

This highlights the ongoing debate about which digital assets fall under securities regulations, a question that has significant implications for the broader crypto market. The law firms are seeking a trial by jury, suggesting that the case may have major implication in the crypto space.

Platform Accused of Exploiting Users and Promoting Harmful Content

Beyond securities violations, the lawsuit alleges that Pump.fun exploited its users by leveraging internet culture to promote volatile and unregistered tokens, a practice likened to a "novel evolution in Ponzi and pump and dump schemes."

The complaint further states that Pump.fun facilitated the creation of tools that enabled malicious actors to develop and sell worthless tokens in minutes. 

Some of these tokens, the lawsuit claims, were linked to offensive content, including racism, antisemitism, and other social vices, raising concerns about the platform's content moderation policies. This is particularly concerning given the platform's popularity among younger users, including minors.

Pump.fun's Business Practices Under Scrutiny

The lawsuit criticizes Pump.fun for allegedly enriching a select few while leaving ordinary users vulnerable to significant losses.

Analyst Adam Tehc of Dune Analytics noted that only a tiny fraction (0.41%) of Pump.fun's 13.4 million wallets have made substantial profits, with a small number of wallets generating millions in returns, while the vast majority of users likely experienced losses.

Furthermore, the platform's lack of Know-Your-Customer (KYC) and Anti-Money Laundering (AML) protocols raises concerns about its potential use for illicit activities. The complaint also mentions that the platform generated over $500 million in fees through its operations.

Solana Blockchain Drawn into the Controversy

While the lawsuit primarily targets Pump.fun, it also mentions the Solana blockchain, the network on which the platform operates.

The complaint states that a substantial portion of the alleged securities violations occurred through the defendants' use of the Solana network, potentially drawing the blockchain itself into the regulatory crosshairs. 

This underscores the growing scrutiny faced by blockchain networks that host decentralized applications and raises questions about their potential liability for the activities that occur on their platforms. The price of PNUT, a Solana-based token, has plunged nearly 40% in the last 30 days, adding fuel to the fire.