6 months ago
29
While Americans don’t celebrate the Lunar New Year, the Chinese were still immersed in the festivities when a lawsuit that could alter the future of memecoins was unfolding.
On the second day of the Chinese Lunar New Year, January 30, 2025, Diego Aguilar filed a class action lawsuit against Pump.fun and its operator, Baton Corporation, accusing the platform of issuing memecoins that qualify as unregistered securities. The plaintiff is seeking to have all token purchases invalidated and demands compensation for the financial losses and legal fees incurred by affected investors.
Of course, the plaintiff also accuses Pump.fun of market manipulation. You can refer to the article “The Memecoin Scam” for more details on that, but today, let’s focus on the core issue: could memecoins be classified as securities? This case could very well be a landmark one.
You might be wondering, why would the plaintiff pursue the accusation that memecoins are unregistered securities? Isn’t that the SEC’s job?
In short, the reason the plaintiff is arguing that the memecoins on Pump.fun are securities is to protect investors’ legal rights through U.S. securities laws.
U.S. securities laws, especially the Securities Act and the Securities Exchange Act, establish a comprehensive investor protection framework. From basic registration requirements to information disclosure, as well as anti-fraud and anti-market manipulation provisions, all securities issuance and trading must follow strict regulations and standards. These rules are not only meant to preserve market fairness but also to ensure that ordinary investors receive the transparency and fair treatment they deserve when participating in the market.
For example, Section 5 of the Securities Act requires all securities to be registered with the U.S. Securities and Exchange Commission (SEC) before they are sold publicly. Through registration, issuers are required to disclose detailed financial information, business operations, and potential risks, allowing investors to make informed decisions about their risks and returns. This mechanism prevents unscrupulous issuers from misleading investors with asymmetric information and selling worthless or highly risky assets.
Let’s look at Pump.fun, specifically. Take the FWOG Token as an example. The platform heavily promoted this token through social media influencers, creating false narratives of “100x returns” and enticing investors to jump in. However, apart from platform manipulation, the token had no actual use case or any foundation to support its value. If the token is deemed a security, the platform would have to comply with securities laws’ disclosure rules. This means that the platform must show the real risks and returns of the token, preventing misleading representations.
If the memecoins on Pump.fun are eventually deemed securities, investors could seek compensation under the anti-fraud provisions of securities law. For example, if the platform issued false profit expectations or concealed market risks, investors could sue to recover their losses. Compared to operating without registration, where investors rely solely on the platform’s voluntary norms, securities law offers a more robust legal framework, ensuring that investor rights are systematically protected.
These examples explain why Diego Aguilar chose to file this lawsuit in an effort to secure “securities” status for memecoins. Through this litigation, the plaintiff is not only seeking compensation for himself but also providing a legal avenue for all investors who bought tokens through the Pump.fun platform to assert their rights. If the court recognizes these tokens as securities, all investors will be able to seek similar legal remedies.
Because this lawsuit is not only about the plaintiff’s personal losses but could also become a landmark case for the entire cryptocurrency industry. If the court rules that these memecoins are securities, it will fundamentally change the rules of the market and fill a huge regulatory gap that the SEC has failed to address effectively.
For years, the SEC has attempted to bring cryptocurrencies and tokens within the framework of traditional securities laws but has faced technical and legal challenges. Although the SEC has reviewed some major projects and ICOs (Initial Coin Offerings), it has never had clear policies to regulate the issuance and trading of speculative assets like memecoins.
Data shows that crypto platforms like Pump.fun have expanded rapidly, with weekly trading volumes surpassing $3.3 billion by the end of 2024, a significant portion of which involves memecoins. The platform not only provides technical support for users to create and promote tokens but also pushes tokens’ market hype through social media and partnerships. This “money-grabbing” model has caused many investors to suffer significant losses by blindly following the trends.
If the court recognizes the memecoins on Pump.fun as securities, it will force the platform and token issuers to comply with securities laws, including token registration, public information disclosure, and investor protection. This would shift the cryptocurrency market from a decentralized, lawless growth model to a more compliant and transparent regulatory system.
This class action lawsuit is not just a fight for the plaintiff’s rights but also a self-correction for the cryptocurrency market. It could serve as a breakthrough for issues that the SEC has struggled to address through traditional administrative means, providing a new legal framework for the legitimacy, transparency, and market manipulation of crypto assets. In short, this bottom-up regulatory process may be the essential path for the industry’s maturity.
The plaintiff’s argument is not unfounded but is based on solid legal reasoning and strong factual support. The plaintiff argues that, although the memecoins on Pump.fun may appear unrelated to traditional securities, their substantive characteristics resemble those of securities and meet the standards set by the U.S. Howey Test.
Under the Howey Test, whether an asset qualifies as a security can be determined based on the following four factors:
Investment of Money: The plaintiff points out that investors purchase memecoins on the Pump.fun platform with cryptocurrencies like Solana or USDC, which undoubtedly constitutes an “investment of money.” Investors pay funds to acquire tokens, which have no inherent function or utility and rely entirely on speculative behavior and platform promotion. In other words, investors are not purchasing an asset with actual utility but are engaging in a speculative game filled with uncertainty.
Common Enterprise: On Pump.fun, the market performance of all memecoins is closely linked to the platform itself. The plaintiff argues that the platform controls the issuance, pricing, and circulation of all tokens through a unified technical infrastructure and marketing strategy. The interests of all investors are essentially tied together within a common economic system, where the success or failure of the tokens is directly tied to the platform’s ongoing promotion, marketing, and hype on social media. The platform’s control over token liquidity, price manipulation, and market trends ensures that investors’ wealth depends on the platform’s actions rather than the intrinsic value of the tokens.
Expectation of Profits: The plaintiff emphasizes that Pump.fun created clear profit expectations for investors by continuously hyping the market potential of memecoins. The platform attracted investors not only through exaggerated return expectations but also by using frequent trading, false market hype, and promises of “100x” or “1000x” returns, enticing investors to blindly follow without rational analysis. This behavior undoubtedly created strong expectations of price increases for investors, aligning with the “expectation of profits” key element in securities law.
Efforts of Others: The plaintiff further argues that investors’ returns do not come from their own in-depth market research or efforts but rely entirely on Pump.fun’s ongoing marketing, liquidity management, and market manipulation. Through collaborations with social media influencers and carefully crafted promotional content, the platform made investors believe that these tokens would deliver massive returns. Therefore, investors’ returns are closely tied to the platform’s efforts, matching the “efforts of others” element.
To strengthen the lawsuit’s persuasiveness, the plaintiff also cites expert analysis reports from the cryptocurrency market and market monitoring data. These data show that the platform’s actions are similar to typical “Pump and Dump” schemes, where certain tokens are artificially inflated in price and then quickly crash during mass sell-offs, leaving investors stuck at high prices. Public data indicates that Pump.fun has collected over $500 million in transaction fees and token issuance fees, most of which were not earned through legitimate means but through market manipulation and fake investment hype.
Although the ruling of this case will only apply to the memecoins on Pump.fun, as a case law country, the U.S. ruling will have far-reaching implications beyond this single case. The decision will serve as a benchmark for future cases, especially in the emerging cryptocurrency industry, where the question of whether tokens qualify as securities will profoundly affect global crypto market rules, operations, and regulatory approaches.
Speculation is part of human nature, especially when lured by the temptation of “get-rich-quick” schemes. Many investors forget to think rationally and blindly follow the hype, becoming victims of market manipulation. Memecoins, as ethereal digital assets, have capitalized on this nature by using social media hype and false promotion to attract ignorant investors. They have no real applications or intrinsic value but rely on platform manipulation and speculative market conditions to inflate prices, ultimately leading to investor losses.
On platforms like Pump.fun, where creating and trading tokens is easy, investors are pushed into a market filled with uncertainty and manipulation. The platform’s collaboration with influencers, manipulation of token liquidity, pricing, and market expectations make speculative behavior more rampant and widespread. This collusion not only amplifies market risks but also creates an unequal relationship between investors and the platform.
However, if the court rules that these memecoins are securities, this market manipulation will no longer be a legal blind spot. Pump.fun and similar platforms will be required to comply with the strict requirements of securities law. Securities laws will not only demand token registration and information disclosure but also provide legal remedies for investors, protecting them from false advertising and market manipulation. This ruling will set a clear legal boundary for the global cryptocurrency market, pushing it toward a more compliant and transparent direction.
The ultimate takeaway is clear: the cryptocurrency market must mature. And the industry cannot escape the clutches of U.S. securities laws forever. How this case concludes may determine whether we take a step toward true legitimacy or continue to linger in a state of regulatory uncertainty and market chaos.
Let’s see how this case progresses.
Airdrop Reference is an innovative blockchain education and promotion platform aimed at spreading basic blockchain knowledge and helping ordinary users understand and participate in the development of blockchain technology. The mission of this project is to lower the entry barriers to blockchain, promote high-quality blockchain projects, and allow more people to enjoy the benefits of the Web3.0 era.
Discord | 𝕏 | Zhihu Column | Mirror | Wechat 2.0 | Daii’s 𝕏
English (US) ·