With over 500,000 tokens launched in May alone, there has been a massive increase in the volume of meme coin offerings. Thanks in part to sites like pump. funNow anyone can easily spin a token, upload a photo, and launch a meme coin. Thanks to social media and trading bots, it’s also easier than ever for meme coins to go viral and generate massive profits.
Given all this, it is not at all surprising that we are now seeing a renewed wave of celebrities jumping into the cryptocurrency space with their own tokens. And with this massive influx of new celebrity cryptocurrencies also comes a myriad of legal risks.
Just last week, the cryptocurrency space was filled with heated debate over whether Donald Trump’s son Barron was behind the attack. DJT meme coin on Solana. The creator of this token – the famous “Pharma Bro” Martin Shkreli – claimed in a Twitter Spaces marathon that this meme is the official token of Donald Trump. But there is still no official confirmation on this front.
Cryptocurrency celebrities are nothing new. In the last session, we saw dozens of celebrities Accept lucrative endorsement deals From crypto projects and platforms. As a result of the collapse of FTX and other platforms, many celebrities have been in trouble A tsunami of lawsuits They are accused of using their influence to mislead consumers about the risks of cryptocurrencies.
In this cycle, a new celebrity meme coin has emerged, where lower-level celebrities use meme coins to grow their audience, make huge gains, and Reclaiming a little importance After years of staying out of the limelight.
Celebrity coins are not only released by celebrities such as “B-List”. Caitlyn Jenner And Iggy Azalea-We’re now seeing Z-list celebrities dropping coins.
During frothy peak market cycles, both pump-and-dump scammers and even well-meaning celebrities can step up their skis and drop tokens with promises they have no realistic chance of ever keeping. As a result, cryptocurrency newbies and even overly enthusiastic people can fall prey and suffer huge losses due to fraudulent token drops.
Cryptocurrencies provide an amazing way to unite large communities around viral memes, potentially giving their holders the opportunity to generate life-changing wealth in the process. So it’s no surprise that celebrities are turning to coins as a way to expand their reach and their wallets as well.
But for all their potential, meme coins “symbolize attention” — as crypto influencers recently noted. Mando– Coins can also be misused to manipulate the markets and commit fraud.
We are about to enter into what the investor affectionately described Raoul Pal As the “banana zone” of this cryptocurrency cycle – that point where anything and everything has the potential to go parabolic. As we learned during the NFT market cycle of late 2021 and early 2022, this is also the stage where scammers and opportunistic celebrities race into the cryptocurrency community to pump and dump tokens for massive gains. Unfortunately, there is a huge incentive for scammers to exploit this stage of the market cycle and exploit consumers to make quick and easy profits.
At the height of the banana zone, founders could overlook the legal risks that come with dropping coins. In their pursuit of bigger and bigger profits, founders forget or deliberately ignore the fact that they can be sued and even criminally prosecuted for the outrageous promises they made in connection with coin offerings.
As we move deeper and deeper into banana territory, this is a good time to remind influencers and celebrities of the legal pitfalls that can come with launching and promoting meme coins. One important point to stress is that regardless of whether a popular meme coin project is considered a commodity or a security, its founders are nonetheless open to potential civil or criminal liability if they make fraudulent claims about the token to increase sales.
Celebrities who promote or launch meme coins could face significant civil legal liability if their actions are deemed to have manipulated the markets. Celebrities who promote or establish meme currencies can also face fraud and misrepresentation charges if they are proven in court to have made false or misleading claims.
In order to prevail in a civil fraud claim, consumers must typically prove that a celebrity made a false statement about a material fact about their token—knowing that the statement was false or intended to deceive—and that the consumer relied on that statement to their detriment.
Celebrities who promote memes may be liable under securities laws, which impose strict regulations to protect investors from fraud and market manipulation. Whether a memecoin is a security or a commodity depends on several factors beyond the scope of this article. But regardless of whether a memecoin is an SEC-regulated security or a commodity subject to the jurisdiction of the CFTC, fraudulent marketing of memecoins can expose founders to significant regulatory, civil, and even criminal penalties.
In evaluating whether a token drop is a fraudulent pump-and-dump scheme, regulators and prosecutors will generally look to the following factors: (1) the specific characteristics of the token – including the intent behind the launch of the token; (2) how the token will be marketed, including the potential promise of huge returns; and (3) the team’s representations about the future utility of the token.
Obviously, the more over-promised or under-delivered promises of massive gains and future benefit, the more likely these tokens will be subject to regulatory and law enforcement scrutiny.
Although memes still represent new and uncharted waters for regulators, prosecutors are coldly and methodically evaluating these token offerings under existing criminal fraud laws. If the celebrity meme currency looks like a pump and dump, a prosecutor will likely be able to prove the basic elements of a consumer defrauding scheme.
To successfully prosecute a celebrity in a pump-and-dump scheme, the government must prove that: (1) the celebrity devised a scheme to defraud investors; (2) the well-known person acted with the specific intent to defraud investors out of money or property; (3) the celebrities used interstate wires, such as telephone lines and Internet connections, to carry out the scheme; and (4) a celebrity scheme to defraud interstate or foreign commerce.
It may be fairly easy for plaintiffs to prove these elements if, for example, a celebrity made false statements about a token’s roadmap or expected gains with the intent of generating hype and attracting buyers. Manipulating the market through coordinated efforts to raise the price or create the illusion of high demand for the token can also be evidence of a fraudulent scheme.
If celebrities or founders sell their cryptocurrencies after artificially inflating the price — causing the price to fall quickly — and this market manipulation causes significant losses to other holders, it could be further evidence of a fraudulent scheme.
It is also worth noting that willful ignorance or willful blindness on the part of founders as to the illegality of their conduct is generally not a valid defense to prosecuting fraud.
While tokens can attract attention, connect communities, and create opportunities for significant financial gains, they also open the door to widespread fraud and manipulation. The ease of launching meme currencies, coupled with the viral nature of social media, makes it imperative that consumers be vigilant — and that A-list celebrities be aware of the legal consequences of their actions.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered legal or financial advice. Readers should consult with their legal and financial advisors to understand the specific implications and regulations that apply to their circumstances. The opinions expressed in this article are those of the author and do not necessarily reflect the opinions of any affiliated organizations, celebrities, memes, or brands.
Edited by Andrew Hayward