Pump.fun Faces Class Action Over PNUT Token

One of the most prominent crypto projects of 2024, Pump.fun, is now under legal scrutiny. A class action lawsuit, filed in the Southern District of New York, alleges that the platform violated securities laws with the sale of its popular meme coin Peanut the Squirrel (PNUT).

While the plaintiff, Kendall Carnahan, claims to have lost just $231, the lawsuit aims to represent “hundreds or thousands” of affected users. The complaint accuses Pump.fun of offering and selling unregistered securities while highlighting harmful and exploitative practices on the platform.

Allegations Against Pump.fun

The lawsuit identifies UK entity Baton Corporation Ltd, operating as Pump.fun, along with founders Alon Cohen, Dylan Kerler, and Noah Bernhard Huge Tweedale (Sapijiju) as defendants.

Key claims in the filing include:

1. Unregistered Securities: PNUT was allegedly sold as an unregistered security due to negligence or strict liability.
2. Centralized Control: Pump.fun’s token creation and marketing framework allegedly give the platform undue control over tokens launched on its platform.
3. Harmful Content: The lawsuit accuses Pump.fun of facilitating tokens that promote racist, abusive, and sexually explicit content to drive trading volume.

Examples cited include tokens featuring hate speech, violent imagery, and abusive marketing tactics, including a dev setting himself on fire to promote a token.

Simplified Token Creation at a Cost

Pump.fun allows users to create tokens through a simplified process, requiring minimal input. This has led to the creation of over 6 million tokens in just a year, accounting for 71% of new Solana tokens monthly.

The platform has generated $420 million in revenue, primarily through transaction fees, but the lawsuit alleges that Pump.fun capitalized on controversial and harmful content to maximize trading activity.

PNUT: The Center of Controversy

The plaintiff, Carnahan, claims to have purchased PNUT on November 4, selling it the next day at a $231 loss. Ironically, PNUT’s value skyrocketed 4,134% in the following days, reaching a $2.4 billion market cap.

The lawsuit alleges that Pump.fun heavily marketed PNUT once it gained traction, though only limited mentions of the token have been found on the platform’s social media.

Platform Practices Under Fire

Beyond securities law violations, the lawsuit highlights Pump.fun’s failure to implement basic investor protections:

• No Age Verification: Tokens unsuitable for minors can be accessed without restrictions.
• Lack of KYC/AML Compliance: The platform lacks know-your-customer (KYC) and anti-money-laundering (AML) checks.
• No Risk Disclosures: Users are not informed of potential risks associated with trading on the platform.

These lapses have allowed harmful trends, including livestreamed stunts and explicit marketing campaigns, to flourish.

A History of Controversy

Pump.fun has faced several scandals before this lawsuit:

• May 2024 Hack: A disgruntled employee drained $2 million worth of Solana from the platform.
• Livestreaming Backlash: Viral controversial streams led to a UK Financial Conduct Authority warning and restricted access for UK users.

What’s Next?

Legal experts suggest that if the class action succeeds, Pump.fun could face significant financial and regulatory consequences. The case shines a spotlight on the broader crypto industry’s need for better oversight and investor protections.

As the lawsuit progresses, the outcome may serve as a warning to similar platforms operating with lax safeguards.