A United States legal firm has filed a class action lawsuit against Pump.fun, according to a  Jan. 17 announcement.

The law firm claims the platform caused financial losses for investors who traded the PNUT token. So, its suit seeks to represent all affected individuals who purchased PNUT and suffered damages.

The lawsuit alleges Pump.fun breached securities regulations by failing to register PNUT with the US Securities and Exchange Commission (SEC).

According to the filing:

“Pump.Fun creates an ecosystem where every token, including the PNUT Token, shares identical characteristics that qualify them as securities under federal law.

Pump.Fun’s uniform infrastructure ensures that all tokens, regardless of their nominal creators, are fundamentally controlled and managed by Pump.Fun and the Defendants in a manner that satisfies the elements of the Howey test.”

It further accuses the platform of neglecting essential investor safeguards, such as Know Your Customer (KYC) checks, anti-money laundering protocols, and risk disclosures. These lapses reportedly allowed users to open accounts and buy tokens in under five minutes, regardless of age or other restrictions.

[Editor’s Note: These arguments align with outgoing SEC Chairman Gary Gensler’s overall view on the industry. Burwick Law believes that the number of affected investors is likely significant, possibly reaching the thousands. However, it may be challenging to find investors who would actively prefer pumpfun tokens to be designated as securities, as the suit alludes.]

The company’s blockchain-focused website states,

We believe in the transformative power of law, especially in the complex arenas of digital assets and securities. As a leading litigation firm, our focus is on navigating these intricate legal landscapes with unmatched precision, delivering tailored strategies that empower our clients to overcome challenges and achieve their objectives.”

Legal implications

Crypto lawyer Gabriel Shapiro has commented on the case, stating that Pump. fun’s reliance on closed-source, centralized systems would make it difficult for the platform to dismiss the lawsuit.

He contrasts this with Uniswap’s class action defense, which succeeded partly due to its decentralized and transparent structure. Shapiro also notes potential weaknesses in Burwick’s case, such as its arguments on horizontal commonality and the interpretation of “investment of money.”

According to him, the legal outcome could hinge on whether Pump.fun’s operators are considered issuers of securities or merely brokers or promoters. This distinction is crucial, as identifying the platform as an issuer could result in a larger judgment.

Shapiro concludes that platforms like Pump.fun could mitigate legal risks by adhering to crypto principles like open-source transparency and decentralization.

He added:

“Even if you have these, you will still face legal risks, but your defenses will certainly be stronger, as Uniswap’s were, and I think pump would have a much easier time getting this case dismissed–or possibly would not be facing it at all–if it was decentralized/autonomous like Uniswap’s AMM pools are.”

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