The lawsuit was filed in response to preemptive legal actions that were taken by some other crypto companies looking for judicial clarity on regulatory issues. Meanwhile, tech groups TechNet and NetChoice challenged the CFPB’s expanded oversight of digital payment apps, and accused the agency of overreach. Pump.fun, the Solana-based meme coin launchpad, is also facing a class-action lawsuit for exploitative practices and for allowing harmful content. In South Korea, crypto regulations proved to be quite useful after it took its first enforcement action under the Virtual Asset Protection Act.
Developer Challenges DOJ's Money-Transmitting Laws
Michael Lewellen, a crypto developer and fellow of the advocacy group Coin Center, filed a lawsuit against US Attorney General Merrick Garland, asking for more legal clarity on his new cryptocurrency software, Pharos. The software is designed for non-custodial crowdfunding campaigns, and raised some concerns about potential prosecution under current money-transmitting laws.
Lewellen's suit was filed in a Texas federal court on Jan. 16, and requests a ruling that his software does not violate these laws. He also wants to block any future legal actions by the Department of Justice (DOJ).
(Source: Court Listener)
The lawsuit alleges that the DOJ expanded its interpretation of money-transmitting laws unconstitutionally by infringing on First and Fifth Amendment protections. Lewellen argues that Pharos, which does not grant him control or custody over users' cryptocurrency, falls outside the scope of money-transmitting regulations. The complaint also draws parallels to cases against developers of crypto mixers, like Tornado Cash’s Roman Storm and Samourai Wallet’s Keonne Rodriguez, who were charged with operating unlicensed money-transmitting businesses and money laundering.
Coin Center is a well known crypto advocacy group, and it is backing Lewellen's case due to the growing industry concerns over legal risks faced by crypto developers. In a public statement, Lewellen mentioned the broader implications of the case for crypto innovation in the US. He firmly believes that overreaching interpretations of money-transmitting laws threaten the ability to create non-custodial crypto solutions.
The lawsuit was filed after a series of preemptive legal actions by some other crypto companies looking for judicial clarity on regulatory issues. Software firm Consensys sued the SEC last year to declare Ether a non-security, though the case was later dismissed. Similar cases involving Beba and Lejilex asked for rulings to protect their crypto projects from regulatory challenges but faced pushback from the SEC.
Attorney General Garland is preparing to step down with President-elect Donald Trump set to re-enter office. His successor, Pam Bondi, is undergoing confirmation hearings.
Tech Groups Sue CFPB
Two technology trade groups, TechNet and NetChoice, also recently filed a lawsuit against the US Consumer Financial Protection Bureau (CFPB), challenging a new rule that expands the agency’s oversight to include payment apps and digital wallets. The rule was finalized in December, and it grants the CFPB supervisory authority over “general-use digital consumer payment applications,” targeting large non-bank financial service providers like Apple Pay, Google Wallet, PayPal, Venmo, and Cash App. Crypto wallets and decentralized wallets are excluded from the rule.
The groups argue that the CFPB’s move is an overreach, and NetChoice even called it a “blatant power grab” that threatens innovation, increases costs, and reduces consumer choice. They pointed out that many of the affected companies are already subject to extensive state-level regulation and that the CFPB failed to demonstrate regulatory gaps that would necessitate federal intervention at all. The lawsuit describes the rule as “arbitrary and capricious,” and mentions that it violates statutory requirements.
The CFPB defends the rule as a measure to protect consumer data, reduce fraud, and combat illegal debanking through proactive examinations of compliance with federal privacy and fraud laws. However, critics argue that it imposes unnecessary barriers for businesses and consolidates excessive government control over a highly innovative sector.
On the same day that the lawsuit was filed, the CFPB fined Block Inc., the parent company of Cash App, over alleged insufficient fraud protections. The regulator accused Block of directing fraud-affected users to their banks for transaction reversals. Block denied this claim. The enforcement action included up to $120 million in compensation for affected users and a $55 million penalty to be paid to the CFPB’s victim relief fund.
This legal challenge was made during a time of heightened scrutiny of digital finance. The CFPB also proposed additional rules earlier this month that could require crypto asset service providers to reimburse users for losses from hacks and scams.
Pump.fun Faces Class-Action Lawsuit
Regulators are not the only entities facing legal backlash. Burwick Law, a US-based crypto law firm, announced that it plans to pursue legal action on behalf of investors who suffered losses from the Solana-based meme coin launchpad Pump.fun. In a public statement, the firm revealed it spent months working with people who lost large amounts of money through meme coins, rug pulls, and unfulfilled promises on platforms like Pump.fun.
The firm criticized Pump.fun and its anonymous creators for profiting from harmful and exploitative practices. More specifically, Burwick alleged that the platform collected hundreds of millions of dollars in fees while hosting inappropriate and harmful content, including depictions of drug use, racism, antisemitism, and violent acts. The law firm also accused Pump.fun of exploiting users under the guise of crypto innovation.
Pump.fun is a launchpad that allows users to create and launch meme coins without needing much technical expertise. Its popularity grew quite a bit since its launch, and reportedly saw over 14 million crypto wallets interact with the platform. However, data from analyst Adam Tehc indicates that only about 0.4% of users actually earned profits exceeding $10,000.
The platform also faced some serious criticisms, including from the UK’s Financial Conduct Authority, which banned residents from accessing Pump.fun in December to stop scams. Pump.fun also previously offered a livestream feature, but this was quickly suspended after reports of creators engaging in dangerous stunts to promote their tokens.
Burwick Law invited any other affected investors to join its class-action investigation. The firm is also busy with legal action related to Moonbirds and Proof Collective NFTs, as well as the Full Send Metacard NFTs, which it claims offered unrealistic promises of benefits to investors.
Virtual Asset Protection Act Sees First Enforcement Action
Although they sometimes cause confusion for companies, crypto laws do sometimes protect investors as they are supposed to. South Korea's Financial Services Commission (FSC) recently reported its first case under the Virtual Asset User Protection Act, targeting alleged unfair cryptocurrency trading practices. It was enacted in July of 2024, and mandates local virtual asset service providers (VASPs) to monitor and report abnormal transactions.
In this case, suspects were charged with manipulating crypto prices through a "pump and dump" scheme. The FSC revealed that the price manipulation involved placing multiple buy orders to inflate the value of a crypto before selling off assets in brief intervals, often within 10 minutes. The scheme generated hundreds of millions of Korean won over just a month.
Meanwhile, South Korea continues discussions on corporate crypto investment accounts, with the second Virtual Asset Committee meeting addressing potential approvals. Additionally, the FSC is expected to review punitive measures for local exchange Upbit, which is facing allegations of over 500,000 Know Your Customer (KYC) violations in 2024.
