Solana, Pump.fun execs sued. Lawsuit claims 5,000 private messages prove ‘insider-rigged casino’

Critics have long argued that memecoin markets are rigged against retail investors. A team of lawyers says it can prove that theory in federal court.

Earlier this year, Michael Okafor and other memecoin investors sued executives at Solana Labs, the Solana Foundation, Jito Labs, the Jito Foundation, and Pump.fun. The lawyers alleged they worked together to create an “insider-rigged casino.”

In September, some defendants demanded that Judge Colleen McMahon toss the case. Before she could, however, the plaintiffs’ lawyers said they had new information: over 5,000 private messages that show Solana Labs and Pump.fun engineers discussing the alleged scheme in real time.

An initial review of the logs, provided by a confidential informant, showed “multiple direct communications” in which engineers from Solana Labs and Pump.fun discussed “integration of key software components,” Max Burwick, one of Okafor’s attorneys, told the judge.

On December 11, the judge approved Okafor’s request to file an amended lawsuit that will include new information gleaned from those messages.

Okafor and his attorney now have until January 7 to file the amended lawsuit.

Some Solana-affiliated attorneys have said they are skeptical the lawsuit will survive the judge’s scrutiny.

Still, her decision comes as the lawsuit has turned ugly.

“I am being threatened with rape and murder for representing my clients,” Burwick, a bombastic attorney with a nose for spectacle, wrote on X on Thursday, just three days after sharing developments in his multiple crypto lawsuits on the social media platform.

“Threats of violence will not stop us from fulfilling our ethical duties as attorneys or from continuing our work to bring accountability and help build a better crypto industry.”

‘Rigged slot machine’

The investors who bought memecoins on Pump.fun were victims of a “coordinated racketeering enterprise,” according to the lawsuit.

The lawsuit likens Solana to a casino and Pump.fun to a slot machine. Jito-created software completes the alleged scheme, by letting certain traders move ahead in the transaction queue by paying “tips.”

The lawsuit calls the Pump.fun memecoin market “extractive,” a “rigged slot machine” that “gave insiders early access to every token” while inflicting “catastrophic losses” on retail investors.

“Pump.fun’s homepage, interface design, and social media campaigns all emphasised ‘fair launch,’ reinforced by claims of ‘no presales,’ ‘no insider allocations,’ and ‘rug-pull proof launches,’” the lawsuit reads.

In reality, Pump.fun tutorials and guides recommended that memecoin creators use Jito software to buy an outsize share of their own tokens before anyone else could, virtually guaranteeing profit at the expense of less sophisticated investors, according to the lawsuit.

“The platform presented a single static screen to all users — while insiders used superior infrastructure to pull the [slot machine] handle first, every time,” the lawsuit alleges.

The lawsuit is unclear why a supposedly rigged system would benefit Pump.fun.

While ensuring creator profits would drive new memecoin generation, it stands to reason it would also drive away the estimated 60% of retail investors who lost money at the “rigged slot machine,” whose combined losses may have topped $4 billion, according to the lawsuit.

But people continue to trade. While it’s fallen by 90% since January, Pump.fun still sees just under $50 million in daily transaction volume, according to DefiLlama data.

And what’s good for Pump.fun is good for Jito and Solana. Pump.fun set off a memecoin frenzy. Much of the ensuing transaction volume flowed through Jito’s software.

Activity on the Solana blockchain boosted the value of its cryptocurrency, SOL, enriching Solana Labs, the Solana Foundation, and their executives.

“While retail users were induced into transacting based on false promises and asymmetric information, the defendants engineered a system in which they were always guaranteed to win,” the lawsuit reads. “Fees accrued whether a token succeeded or failed.”

The lawsuit is seeking extraordinary orders from the court.

The lawyers aren’t just demanding compensation for the plaintiffs’ supposed losses from trading on Pump.fun.

They also it ask the judge to place the companies in receivership, and shut them down unless they acquire gambling and money transmitter licenses, implement customer background checks and anti-money laundering procedures.

It also demands that the companies and executives give up “all ill-gotten gains,” including appreciation in SOL attributable to their alleged scheme.

‘Non-actionable puffery’

In September, the Solana Foundation, Jito Labs, and Pump.fun asked Judge McMahon to dismiss the case, framing it as an example of disgruntled investors attempting to shift blame for their unsuccessful trades.

The lawsuit wasn’t specific enough, they argued. The lawsuit never mentioned any specific examples of the alleged rigged system that allowed “insiders” to profit at the expense of less sophisticated investors.

“It asserts that Pump.fun touted launches as ‘fair,’ ‘safe,’ and ‘rug-pull proof’ but pleads no presales, insider allocations, or rug pulls,” Pump.fun said in its motion to dismiss. “Vague assurances of fairness and safety are, at most, ‘non-actionable puffery.’”

Jito said it began working on its technology long before Pump.fun existed. And that technology was available to anyone.

“Crediting plaintiffs’ theory of liability would be akin to holding a manufacturer of high-speed modems liable for the conduct of third parties on the internet,” Jito said.

Jito Labs, the Jito Foundation, and their executives were dropped from the lawsuit in September.

Perhaps most significantly, the lawsuit offered no proof that the companies and executives conspired to create an uneven playing field, the defendants said.

The lawsuit, Pump.fun noted, relies “heavily on the claim that Jito Labs and Solana Labs had overlapping investors.

But the existence of shared investors among two alleged members of the enterprise does not imply how or whether ‘the various sets of named defendants . . . had any interpersonal relationships.’”

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at [email protected].