According to experts, the meme coin acquisition team is facing legal entanglements

The 2024 meme coin surge was largely driven by community takeovers of multi-million dollar projects (e.g. club and Giga Chad—After the original developer decided to leave the company, the early investors took control and it eventually took off to new heights.

Legal experts warn that community takeover (CTO) members could face a number of serious legal issues, even if they did not create the token from scratch.

“One of the biggest risks to community acquisition teams is misleading marketing, unfair or deceptive trade practices, and even criminal misrepresentation or fraud,” says Charlyn Ho, founder and managing partner. Rica lawSaid Decode.

Degens often overstates the projects he has invested in. But when he is in charge of a project, there is a risk that he will misrepresent the token. That is why it is important for the CTO team to clearly explain the goals and commitments, Ho explained.

“Some of the issues that were raised in court were, for example, that the founders of these projects claimed that their coins had the support of a large investor community, but they knew that wasn’t the case,” Ho added.

For example, Terraform Labs was found guilty of defrauding customers by claiming that Chai (a popular payment app) was processing and settling payments when in fact it was not used as claimed. While this is a very high-profile case, Ho believes a similar situation could apply to meme coins.

Big Crypto Twitter influencers on the project (e.g. Ansem) participated in the project despite there being no evidence for the claims. In this case, the CTO team may face potential legal issues.

Once the CTO team takes control, the original developers or token distributors will most likely sell, delete, and ghost the social accounts associated with the project. This can create issues with regard to intellectual property (IP) as it makes it impossible to formally transfer authority to the CTO team.

“Is it worth the risk to keep the same name, same logo, same color palette?” said AR Media’s attorney and CEO. Andrew RossowIn an interview Decode. “The developer may not care, but at least document that there was a good faith effort to contact or verify somewhere. Can we use this?”

That is, the CTO team may infringe on the IP rights of the original developer, for example, if the original developer used a picture of his pet dog in the project.

Notable examples of these types of IP disputes include: SharkcatThe owner of the popular Instagram Nala Cat brand has hit back after the cat was used without permission in a booming cryptocurrency project. Nala’s owner was unhappy with the way the cat was portrayed and fought to get the project to shut down. Ultimately, Nala’s owner and the meme coin project Mutual agreementGrants an official license to the IP for your project.

There was another similar case recently, when the creators of the iconic Keyboard Cat team officially licensed two unofficial meme coins that used their IP without permission.

While these incidents took place out of court and involved IP not owned by either the token creator or the CTO team, similar IP issues can arise if a token distributor is unhappy with how their cat, frog, or dog is depicted.

“The token creator still owns the name, image, likeness and all rights associated with the dog, and can say, ‘Take this down,’” Rosow explained.

Some CTO teams are actually led by the original token distributors. Those who want to launch a successful meme coin create a new wallet, create Pump.fun tokens, sell them immediately, and then log into the new wallet and start pushing the project under a different identity.

Mainly, this is to take advantage of prominent CTO metas that many degens do not invest in projects when their dev wallets are still mixed due to their distrust of centralized figures. But will this be eliminated? any Personal legal liability?

“If the person who created this were to abandon their stuff and rejoin the community as a non-official founder,” Rossow said. Decode“If nothing is registered under his name, it would be very difficult to say that this one person is responsible for all this.”

That is, if the individual engages in illegal activities after returning to society, he or she will be held legally responsible.

“This is not a ‘shortcut’ to accountability.” lawyer Bitget’s Chief Legal Officer and Hon YeahSaid Decode it. “If the original creator’s actions are deemed manipulative, fraudulent, or illegal, they may still face legal consequences.”

According to the law, the CTO team and the developers of the meme coin could face legal consequences, but whether these laws will actually be enforced is another question. Lawyer Jacob Martin Due to the inherently speculative nature of meme coins, we believe it is unlikely that any serious legal action will be taken in this area.

“I think meme tokens will get a lot less scrutiny now that it’s a little bit clearer where they sit in the stack,” Martin said. Decode.

Edited by Ryan Ozawa and Andrew Hayward