This lawsuit was brought in response to legal preemptions taken by other crypto firms seeking judicial clarification on regulatory matters. TechNet and NetChoice, two tech companies, have also criticized the CFPB for its expanded supervision of digital payment applications and accused it of being overreaching. Pump.fun is facing class action lawsuits for its exploitative business practices, as well as for the harmful content it allows. South Korea’s crypto regulation proved useful when it implemented its first enforcement actions under the Virtual Asset Protection Act.
A developer challenges the DOJ’s money-transmitting laws
Michael Lewellen is a cryptocurrency developer, fellow at the Coin Center advocacy group, and a member of US Attorney General Merrick G. Garland. He filed a suit against him to get more clarity about his new crypto software Pharos. This software was designed to be used for non-custodial campaigns and has raised concerns over possible prosecution under the current laws on money transmission.
Lewellen filed his lawsuit in Texas Federal Court on January 16, and requested a decision that Lewellen’s software did not violate the laws. He wants to stop any legal action by the Department of Justice.
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In the lawsuit, it is alleged that DOJ has expanded its interpretations of laws governing money transfers in a way which violates First and Fifth Amendment rights. Lewellen claims that Pharos does not fall under money-transmitting laws because it doesn’t give him custody or control over the cryptocurrency of users. This complaint draws comparisons with cases involving developers of cryptocurrency mixers like Tornado Cash’s Roman Storm or Samourai Wallet’s Keonne Rodrigo, both charged for money laundering and operating money-transfer businesses without a license.
Coin Center, a crypto-advocacy group that is well-known in the industry, is supporting Lewellen’s case because of growing concerns within the crypto community about legal risks. Lewellen outlined the implications for the US of this case in a statement. He believes overreaching interpretations to money-transmitting legislation threatens the ability of crypto-solutions that do not require custody.
This lawsuit came after other crypto firms filed a number of legal preemptive actions to gain judicial clarification on certain regulatory issues. Consensys, a software firm, sued the SEC in 2013 to have Ether declared a non security. The case was dismissed later. Beba, Lejilex and other companies asked the SEC for similar rulings in order to shield their crypto projects against regulatory challenges. The SEC resisted.
The Attorney General Garland prepares to resign as President-elect Donald Trump is set to return to office. Pam Bondi is currently undergoing confirmation.
Tech groups sue CFPB
TechNet, and NetChoice are two technology groups that have also filed a suit against the US Consumer Financial Protection Bureau. They were challenging a rule which expands agency oversight to digital wallets and payment apps. This rule, which was approved in December, grants the CFPB authority to supervise “general-use consumer digital payment applications” that target large financial services providers such as Apple Pay, Google Wallet PayPal Venmo and Cash App. The rule does not apply to crypto wallets or decentralized wallets.
They claim that CFPB has overreached, with NetChoice calling it a “blatant attempt to grab power” which threatens innovation and increases consumer costs and choices. The groups argued that most of the companies affected are already subjected to state regulation, and the CFPB had failed to show that there were regulatory gaps which would require federal intervention. In the lawsuit, it is stated that this rule violates statutes and is “arbitrary and capricious.”
The CFPB defends this rule by claiming that it is a way to protect data about consumers, combat fraud and illegal debanking, through proactive checks of federal fraud and privacy laws. Critics argue, however, that the rule imposes unnecessarily high barriers to businesses and consolidates government control of a sector which is highly innovative.
The CFPB fined Block Inc. on the day the suit was filed for alleged fraud protections that were not adequate. Block was accused by the regulator of sending fraud victims to their bank for transaction cancellations. Block has denied the claim. Block denied this claim.
The legal action was brought during an era of increased scrutiny on digital finance. The CFPB proposed new rules in the beginning of this month, which could force crypto asset providers to compensate users for hacks or scams.
Pump.fun Faces Class-Action Lawsuit
Not only regulators are facing legal action. Burwick Law is a US crypto law firm that announced it would pursue legal actions on behalf of investors whose losses were caused by the Solana-based Pump.fun meme coin launchpad. The firm said in a statement that it has spent many months helping people who have lost large sums of money due to meme coins, rug pulling, or unfulfilled promise on platforms such as Pump.fun.
Pump.fun, and the anonymous creators behind it, were criticized by Burwick for profiting off of harmful and exploitative activities. Burwick claimed that the platform was collecting hundreds of millions in fees for hosting harmful and inappropriate content. This included depictions of racism, antisemitism and violent acts. Pump.fun was accused by the law firm of exploiting its users in the name of innovation.
Pump.fun allows you to launch and create meme coins with little technical knowledge. Since its launch in 2013, the platform has grown to be very popular. Accordingly, over 14,000,000 crypto wallets have interacted with it. Data from Adam Tehc, an analyst, indicates however that just 0.4% of the users have actually made profits above $10,000.
Pump.fun was also the target of serious criticism, such as from UK Financial Conduct Authority which, in order to prevent scams, banned UK residents from using it. Pump.fun had a feature that allowed users to livestream their videos, but it was suspended shortly after the Financial Conduct Authority received reports about creators performing dangerous stunts in order to promote tokens.
Burwick Law invites any other investors affected to join their class-action investigation. Burwick Law is currently pursuing legal actions against Moonbirds NFTs as well as Proof Collective and Full Send Metacards NFTs. The firm claims that these NFTs made unrealistic promises to investors.
Virtual Asset Protection Act First Enforcement Action
Crypto laws can be confusing for businesses, but they do protect investors in the way they should. The Financial Services Commission of South Korea (FSC), which is responsible for overseeing the Virtual Asset User Protection Act in South Korea, recently announced its first case. It was a complaint against alleged unfair trading practices involving cryptocurrency. The law was passed in 2024 and requires local virtual asset services providers to report any abnormalities.
The suspects in this case were accused of manipulating cryptocurrency prices using a pump and dump scheme. FSC disclosed that price manipulation was achieved by placing several buy orders in order to increase the value of cryptos before quickly selling them off, sometimes within 10 minutes. Over the course of a single month, this scheme brought in hundreds of millions Korean won.
The second Virtual Asset Committee Meeting in South Korea addressed potential approvals. The FSC will also review the punitive actions for Upbit local exchange, who is accused of having committed over 500,000 Know Your Customer violations by 2024.
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