Class Action Lawsuit Alleges Meme Coin Fraud, Citing 98% Token Crashes and Public Figure Use

Executive Summary

A class action lawsuit has been filed, alleging that Meteora founder Benjamin Chow orchestrated "scam tokens" such as MELANIA and LIBRA, utilizing high-profile figures Melania Trump and Javier Milei as "props" in alleged pump-and-dump schemes. The suit claims these tokens were part of a "coordinated liquidity trap," resulting in substantial value depreciation post-promotion. This legal action contributes to a bearish market sentiment for celebrity-backed crypto projects and underscores high volatility risks inherent in such ventures due to potential pump-and-dump dynamics.

The Event in Detail

The federal class action lawsuit, initially brought against Benjamin Chow and Hayden Davis, co-founders of crypto exchange Meteora and venture capital firm Kelsier Labs respectively, has expanded its allegations to include racketeering practices. The plaintiffs assert that Chow and Davis developed a "repeatable six-step 'playbook' for pump-and-dump fraud," which they applied to at least 15 crypto coins, including $MELANIA and $LIBRA. Meteora is alleged to have provided the technical infrastructure for these tokens, while Kelsier Ventures supplied initial capital and managed promotions, including recruiting crypto influencers.

The lawsuit specifically targets the $MELANIA and $LIBRA meme coins. Melania Trump promoted $MELANIA on X in January, directing followers to its website. The complaint claims she was used as "window dressing for a crime engineered by Meteora and Kelsier," with the misuse of her name magnifying harm by injecting political and cultural credibility into the scheme. Similarly, $LIBRA was promoted by Argentine President Javier Milei. Following these promotions, both tokens experienced rapid surges before dramatic collapses. The $MELANIA token's value reportedly plummeted over 98% from an all-time high of $13.73 to approximately $0.18. Blockchain data indicates that team wallets linked to $MELANIA allegedly sold off more than $10 million in tokens, with an additional $30 million in community funds reportedly moved in April through structured sell-offs. The $LIBRA token saw $107 million in insider cash-outs, contributing to its reported 90% decline in value.

Despite the severity of the allegations, a U.S. federal judge previously unfroze over $57 million in USDC connected to the LIBRA lawsuit, held in wallets tied to Hayden Davis and Benjamin Chow. The judge noted compliance with earlier restrictions and the absence of attempts to move or conceal the funds, though the case itself was not dismissed.

Market Implications

This lawsuit underscores the significant risks associated with highly speculative meme coins and the potential for market manipulation. The alleged use of public figures as "props" for token promotions, followed by rapid price surges and subsequent collapses, highlights vulnerabilities in the decentralized finance (DeFi) ecosystem. The substantial losses incurred by investors in $MELANIA and $LIBRA, alongside allegations of insider cash-outs, are likely to erode investor trust in celebrity-backed crypto projects and increase scrutiny on new meme coin launches.

The incident reflects a broader issue of market oversaturation, with estimates suggesting over 10,000 active tokens and up to 20 million created in total. Analysis indicates a failure rate exceeding 90% for new tokens, leading to catastrophic investor losses. Non-compliant meme coins, characterized by a lack of verifiable utility, transparent governance, and adherence to Anti-Money Laundering (AML)/Know Your Customer (KYC) standards, are identified as a primary vector for fraud, manipulation, and market contagion.

Broader Context

While a February 2025 SEC staff statement clarified that meme coins are generally not considered securities under the Howey test due to their lack of an investment contract structure, their capacity to inflict widespread financial harm is undeniable. The current regulatory ambiguity allows these assets to thrive on U.S.-based exchanges, exposing American investors to significant risks. This legal action could catalyze further regulatory discussions and potentially lead to stricter oversight.

Proposed legislative updates, such as the GENIUS Act of 2025 and the Clarity Act of 2025, aim to establish clearer frameworks for crypto assets. The GENIUS Act sets strict requirements for stablecoin issuers regarding reserves, audits, and AML compliance, while the Clarity Act mandates disclosures and provides exemptions for certain DeFi activities. Adapting these principles to create a compliance framework for all tokens listed on U.S. exchanges, potentially banning "Non-Compliant Memecoins," could significantly reduce crypto-related scams by 40-60% annually. A U.S. ban on non-compliant meme coins would align with a growing international consensus on managing crypto asset risks, as indicated by recommendations from the IMF and FATF.