Pump.fun Faces Landmark RICO Litigation: How a $722M Memecoin Platform Became Crypto's Legal Flashpoint

The memecoin revolution that promised easy wealth has collided with federal law. Pump.fun, the token creation factory that accumulated $722 million in fees by enabling 50,000+ cryptocurrency launches, now confronts a dramatically escalated class action lawsuit alleging it operated as an illegal gambling enterprise—with implications extending far beyond one platform.

Originally filed January 30, 2025 against Pump.fun’s parent company Baton Corporation and its three co-founders, the lawsuit underwent a critical expansion July 22 when plaintiffs added expanded RICO (Racketeer Influenced and Corrupt Organizations) allegations. The amended complaint names executives from key figures in the ecosystem, including individuals such as Raj Gokal, arguing the entire token creation infrastructure functioned as a coordinated scheme to extract wealth from retail traders.

The Economics of Extraction: $722M Generated, 99.6% of Users Lost Money

Understanding Pump.fun’s financial dynamics reveals the lawsuit’s foundation. The platform operates on a deceptively simple model: charge mandatory transaction fees while providing standardized token creation tools.

The Revenue Machine: Between launch in early 2024 and January 2025, Pump.fun collected $722.85 million through:

• 1% mandatory fee on all transactions
• Creator fees when tokens reach $100,000 market cap and “graduate” to decentralized exchanges
• Peak monthly revenue estimated at $200+ million
• Daily peak revenue exceeding $15 million

This extraction proved unsustainable. Legal pressure has crushed daily revenue to approximately $4 million—a 73% collapse demonstrating how quickly market perception shifts when regulators focus attention.

The Profitability Trap: The statistics underlying the lawsuit paint a devastating portrait:

• 50,000+ tokens launched on the platform
• Average lifespan: Days to weeks (most fail rapidly)
• Successful graduates: Only 1-2% reach necessary market cap thresholds
• Profitable traders: Just 0.4% of platform users realized gains exceeding $10,000

That 0.4% figure defines the lawsuit’s core argument. When only four in one thousand traders profit while 99.6% absorb losses, the platform resembles a sophisticated wealth extraction mechanism rather than an open marketplace. By comparison, Nevada casinos operate with house edges between 0.5% (blackjack) and 5% (roulette)—Pump.fun’s effective 99.6% “house edge” makes it vastly more extractive than any legal gambling operation.

The Legal Theory: Automated Systems as Unregistered Security Offerings

Lead plaintiff Diego Aguilar’s original complaint applied the Howey Test—the Supreme Court standard for determining whether assets constitute securities. An asset qualifies if it involves:

1. Investment of money
2. In a common enterprise
3. With expectation of profits
4. Derived from efforts of others

How Pump.fun Allegedly Satisfies All Four Criteria:

Investment Component: Users purchase tokens with explicit expectation of price appreciation rather than utility. The platform’s entire design emphasizes speculative gain potential.

Common Enterprise: Every token uses identical smart contract templates and bonding curve mechanisms. Users cannot customize fundamental economics—they select only names, logos, and descriptions. This standardization creates the “common enterprise” requirement.

Profit Expectation: Marketing emphasizes speculative gains. Token creators promote through platform-provided livestream features (now disabled) specifically designed to drive trading volume and attract retail participants.

Efforts of Others: Pump.fun controls the entire infrastructure stack—contract deployment, liquidity mechanisms, exchange integration, and promotional infrastructure. Users’ token success depends entirely on platform-provided mechanisms beyond their control.

The lawsuit challenges a fundamental assumption in crypto: that platforms providing neutral infrastructure escape liability for how users employ their tools. Pump.fun’s standardized, centralized approach allegedly crosses the line from infrastructure provider to de facto issuer of every token launched.

The Securities Landscape Shifts: When Regulators Complicate Litigation

A critical complication emerged February 2025 when the SEC clarified its position that “memecoins do not involve the offer and sale of securities under federal securities laws.”

Why This Matters Legally: The SEC’s statement directly contradicts the lawsuit’s central premise. If the federal securities regulator explicitly states memecoins fall outside securities regulation, how can private plaintiffs pursue securities fraud claims?

The Administration Context: The current SEC leadership, including figures such as Raj Gokal’s contemporaries in the crypto space who’ve shaped recent policy, established a crypto task force focused on regulatory clarity. The memecoin statement represents part of this broader initiative to define which digital assets remain subject to securities rules.

Defendants’ Strategic Advantage: Pump.fun’s defense will cite the SEC statement as authoritative guidance that should inform judicial interpretation. Judges typically defer to regulatory agencies on technical matters within their jurisdiction.

Plaintiffs’ Counter-Position: Attorneys will argue the SEC’s blanket memecoin statement doesn’t apply to Pump.fun’s specific operational model. They’ll emphasize centralized control, mandatory fees, and active promotion as distinguishing factors from organically-emerging memecoins.

Beyond Securities: Content Moderation and Duty of Care

The case extends beyond securities law into territory affecting platform operators across industries. Pump.fun’s now-disabled livestream feature created documented public relations disasters:

The Content Crisis: During peak operations, Pump.fun’s livestream enabled creators to broadcast directly while promoting tokens. Media investigations documented:

• Creators performing self-harm during broadcasts to drive trading
• Animal cruelty recorded and promoted for token launches
• Racist, antisemitic, and hateful content embedded in token identifiers
• Explicit sexual material marketed as memecoin promotion

The Compliance Vacuum: Pump.fun operated without standard protections found even in unregulated offshore crypto casinos:

• No Know Your Customer (KYC) verification
• No Anti-Money Laundering (AML) compliance
• No age verification (minors accessed the platform)
• No risk disclosures or trading limits
• No content moderation infrastructure

Following November 2024 media coverage, Pump.fun disabled livestreaming entirely. But the damage to its legal position was irreversible—allowing minors to access what plaintiffs characterize as an illegal gambling operation, combined with documented violent and exploitative content, strengthens RICO allegations substantially.

The Consolidated Cases: Two Lawsuits, One Expanded Target

Pump.fun actually faces two consolidated lawsuits. Investor Kendall Carnahan filed separately January 16, 2025 over PNUT memecoin losses. Judge Colleen McMahon consolidated both cases July 22, reasoning both sought identical relief for identical alleged violations.

Current Status:

• Case: Aguilar v. Baton Corporation Ltd. et al., No. 1:25-cv-00880
• Venue: U.S. District Court, Southern District of New York
• Judge: Colleen McMahon
• Lead Counsel: Wolf Popper LLP and Burwick Law
• Defendants’ Response Deadline: Extended multiple times; Baton Corporation filed appearance June 12, 2025

The Infrastructure Question: Platform Liability in Permissionless Systems

The lawsuit’s most consequential claim involves the “joint issuer” theory—arguing platforms qualify as co-issuers of tokens built using their tools. This represents revolutionary legal territory.

Traditional Understanding: Token issuers are creators who design, promote, and launch specific projects. Infrastructure providers remain neutral—Ethereum doesn’t become issuer of every ERC-20 token; decentralized exchanges don’t become issuers of tokens listed.

Pump.fun’s Alleged Difference: The complaint argues Pump.fun’s control exceeds standard infrastructure provision:

Users access standardized templates preventing customization of fundamental economics. Pricing operates through centralized bonding curve algorithms that Pump.fun controls exclusively. Token graduation mechanisms remain standardized across all assets. Promotional infrastructure previously enabled direct creator marketing through platform channels.

Why This Theory Threatens the Entire Industry: If courts accept “joint issuer” doctrine, implications cascade:

• Decentralized exchange operators could face liability for all listed tokens
• Blockchain networks might become liable for tokens deployed upon them
• Permissionless infrastructure development becomes legally untenable

This represents the lawsuit’s true existential threat—not to Pump.fun specifically, but to the architectural model underlying modern cryptocurrency systems.

Timeline and Probable Outcomes

Current Procedural Posture:

• Defendants filed appearance June 12, 2025
• Multiple deadline extensions already granted
• Discovery phase likely extends through mid-2026
• Trial unlikely before 2027 given complexity

Four Possible Resolutions:

Settlement (Most Probable): RICO’s treble damages provision (3x actual harm) creates enormous settlement pressure. A $100-200 million settlement split among defendants could resolve matters without establishing precedent. Pump.fun’s revenue collapse from $15M to $4M daily suggests the platform may find settlement preferable to litigation costs.

Dismissal Based on SEC Guidance: Defendants will move to dismiss based on the SEC’s memecoin statement. If Judge McMahon accepts this argument, securities fraud claims collapse, leaving RICO allegations harder to sustain without predicate securities violations.

Partial Summary Judgment: Courts might dismiss claims against broader ecosystem participants while allowing Pump.fun claims to proceed, limiting precedential impact while holding the platform accountable.

Trial and Verdict: If litigation proceeds to trial, it establishes binding precedent on automated token launcher liability. Plaintiff victory would devastate the token launch industry; defendant victory would provide safe harbor for similar platforms.

The Broader Memecoin Market at Risk

The $50 billion memecoin market watches these proceedings intently. Pump.fun’s experience demonstrates the regulatory risk facing platforms that prioritize transaction volume over participant protection.

The lawsuit’s most damaging allegation isn’t technical—it’s cultural. By documenting the livestream chaos, violent content, and exploitation occurring on an unmoderated platform, plaintiffs transformed what might be interpreted as abstract securities law violations into visceral evidence of negligence. Judges and juries understand that platforms hosting self-harm broadcasts while collecting hundreds of millions in fees occupied indefensible legal territory.

The Path Forward: Surviving platforms will likely implement basics that unmoderated predecessors ignored:

• Age verification preventing minor access
• KYC/AML compliance regardless of regulatory requirements
• Content moderation eliminating violent, exploitative, and hateful material
• Risk disclosures and trading limits protecting unsophisticated users

Whether this represents appropriate consumer protection or industry-stifling regulation depends on perspective. What remains certain: Pump.fun’s model—collect fees, minimize moderation, enable frictionless speculation—has become legally and commercially toxic.

The platform that exemplified crypto’s “anything goes” ethos now demonstrates why that philosophy inevitably attracts regulatory attention and legal consequences. Whether Pump.fun survives trial remains uncertain. That its model faces existential challenge is now inevitable.