Why Meme Coins Could Create a Legal Minefield for Celebrities

There has been a huge surge in meme coin offerings, with over 500,000 tokens released in May alone. Thanks in part to the following sites: pump.fun, now anyone can easily create a token symbol, upload an image, and launch a meme coin. And thanks to social media and trading bots, it’s easier than ever for meme coins to go viral and generate huge profits.

Considering all this, it is not at all surprising to see a new wave of celebrities now jumping into the cryptocurrency world with their own tokens. And with the massive influx of new celebrity meme coins comes a host of legal risks.

Last week, the cryptocurrency world was abuzz with a heated debate over whether Donald Trump’s son Barron was behind the cryptocurrency. Solana’s DJT Meme Coin. The token’s creator, the infamous “Pharma Bro” Martin Shkreli, claimed in a marathon Twitter Spaces that the meme coin was an official Donald Trump token. However, there is no official confirmation on this yet.

Celebrities in the cryptocurrency industry are nothing new. The last cycle saw dozens of A-list celebrities. Accept lucrative endorsement deals In crypto projects and platforms. Many celebrities have suffered due to the collapse of FTX and other platforms. tsunami of lawsuits He accused him of using his influence to mislead consumers about the risks of cryptocurrencies.

This cycle saw the emergence of a new celebrity meme coin meta. Celebrities from the lower tier use meme coins to grow their audience and make huge profits. recapturing some relevance It went unnoticed for the next few years.

And celebrity meme coins aren’t just released by “B-List” celebrities, such as: catiline jenner and Iggy Azalea—We’re now seeing Z-list celebrities drop their meme coin.

During frothy peak market cycles, both pump-and-dump scammers and well-intentioned celebrities can fall over their skis and drop tokens with promises they have no realistic chance of delivering on. As a result, even cryptocurrency beginners and enthusiasts can suffer huge losses due to fraudulent token drops.

Cryptocurrency tokens offer an incredible means of uniting large communities around viral memes and potentially giving holders the opportunity to create life-changing wealth in the process. So it’s no surprise that celebrities are using meme coins as a way to increase their reach and wallets.

But despite all the potential that meme coins have to “tokenize attention,” as a cryptocurrency influencer recently observed, Command—Meme coins can also be exploited to manipulate markets and commit fraud.

We’re trying to get into what investors have affectionately labeled. Raoul Pal The “banana zone” of this cryptocurrency cycle is the point where things are likely to go parabolic. As we learned from the late 2021/early 2022 NFT market cycle, this is also the phase where scammers and opportunistic celebrities will jump into the cryptocurrency community, pumping and dumping tokens for huge profits. Unfortunately, scammers have great incentive to exploit this phase of the market cycle and prey on consumers for quick and easy profits.

When the banana zone is at its peak, founders may not be aware of the legal risks of dropping a meme coin. In their quest for greater profits, founders forget or intentionally ignore the fact that they could be sued or even criminally prosecuted for the outrageous promises associated with offering meme coins.

As we dive deeper into the Banana Zone, it’s a good time to remind influencers and celebrities about the legal pitfalls that can arise when launching and promoting meme coins. One important point to emphasize is that regardless of whether a celebrity meme coin project is considered a commodity or a security, its founders could be subject to potential civil or criminal liability if they make fraudulent claims about the tokens to promote sales. That there is.

Celebrities promoting or launching meme coins may face significant civil legal liability if their actions are perceived as market manipulation. Celebrities promoting or founding meme coins may be subject to charges of fraud and misrepresentation if it is proven in court that they made false or misleading claims.

To win a civil fraud lawsuit, a consumer must generally establish that the celebrity made a misrepresentation of material fact about his or her tokens (knowing that the statement was false or intended to deceive) and that the consumer relied on the statement to incur damages. You must prove that you wore it.

Celebrities promoting meme coins may also be subject to liability under securities laws, which have strict regulations to protect investors from fraud and market manipulation. Whether a meme coin is considered a security or a commodity depends on a number of factors that are beyond the scope of this article. However, regardless of whether a meme coin is a security regulated by the SEC or a product under the jurisdiction of the CFTC, deceptive marketing of a meme coin could expose its founders to significant regulatory, civil, and even criminal penalties.

When assessing whether a token drop is a fraudulent pump-and-dump scheme, regulators and prosecutors typically consider the following factors: (1) The specific characteristics of the token, including the intent of launching the meme coin; (2) how the tokens are sold, including the potential promise of massive returns; (3) The team’s representation of the token’s future usefulness.

Obviously, the more over-promised and under-delivered the enormous profits and future utility, the more likely it is that these tokens will be subject to scrutiny by regulatory and law enforcement agencies.

While meme coins still present new and uncharted territory for regulators, prosecutors coolly and methodically evaluate these token offerings under existing criminal fraud laws. If a celebrity meme coin looks and sounds like a pump and dump, prosecutors will likely prove an essential element of the scheme to defraud consumers.

To successfully prosecute a public figure for a meme coin pump and dump scheme, the government must prove: (1) A celebrity devised a plan to defraud investors. (2) When a celebrity acts with the specific intention of defrauding investors of money or property; (3) The celebrity used interstate lines, including phone lines and Internet connections, to carry out the plan. (4) Scheme to defraud interstate or foreign commerce in which a public figure is influenced.

For example, if a celebrity misrepresents a token’s roadmap or expected profits with the intention of generating hype and attracting buyers, it may be fairly easy for prosecutors to prove these elements. Market manipulation through concerted efforts to raise prices or create the illusion of high demand for tokens may also be evidence of a fraudulent scheme.

If a celebrity or founder sells tokens after the price has been artificially inflated, causing the price to plummet and such market manipulation causing significant losses to other holders, this could be further evidence of a fraudulent scheme.

It is also worth noting that willful ignorance or willful ignorance of the illegality of the founder’s conduct is generally not a viable defense to a fraud prosecution.

Meme tokens can attract attention, connect communities, and create opportunities for significant financial gain, but they also open the door to widespread fraud and manipulation. The ease of launching meme coins, combined with the viral nature of social media, makes it important for consumers to remain vigilant, and for celebrities on A-to-Z lists to be aware of the legal implications of their actions.

Disclaimer: The information provided in this commentary is for informational purposes only and should not be considered legal or financial advice. Readers should consult their own legal and financial advisors to understand the specific implications and provisions that apply to their circumstances. The opinions expressed in this article are those of the author and do not necessarily reflect the opinions of related organizations, celebrities, meme tokens, or brands.

Editor: Andrew Hayward