Much of 2024’s meme coin bull run has been pushed by community takeovers. Projects worth hundreds of millions of dollars—such as Billy and Gigachad—ended up controlled by early investors who took the reins after the original developer decided to jump ship, ultimately pushing them to new heights.

Despite not creating the token in the first place, legal experts warn that members of community takeovers (CTOs) could face an array of serious legal issues.

“One of the biggest dangers [for community takeover teams] is going to be misleading marketing, unfair or deceptive trade practices, or maybe even criminal misrepresentation or fraud,” Charlyn Ho, founder and managing partner at Rikka Law, told Decrypt.

Degens all too often overhype projects they’re invested in. However, when that person is in charge of the project, they begin to risk falsely advertising the token. For this reason, Ho explained, it’s important for CTO teams to clearly explain the goal and what is set in stone.

“Some of the issues that have come up in the courts have alleged the founders of these projects, for example, have claimed that their coin was backed by a huge community of investors, but they knew it was not,” Ho added. 

For example, Terraform Labs was found guilty of defrauding customers due to stating that Chai—a popular payment app—was being to process and settle payments, despite it not actually being used as stated. That’s a very high-profile example, but Ho believes a similar situation could play out for meme coins.

It’s common for projects to claim that big Crypto Twitter influencers (such as Ansem) have bought into the project, despite no evidence for the claim. In this case, the CTO team could face potential legal trouble.

When a CTO team takes the reins, the original developer or token deployer has likely sold, deleted social accounts tied to the project, and ghosted. This prevents a formal transfer of power to the CTO team, which could cause issues when it comes to intellectual property (IP).

“Is it worth the risk of keeping the same name, the same logo, the same color palette?” said attorney and CEO of AR Media Andrew Rossow, in an interview with Decrypt. “The developer may not even care, but it has to be at least documented somewhere that there was a good faith effort in trying to contact or establish: Are we able to use this?”

This means that CTO teams may be infringing on the IP rights of the original developer—for example, if the original dev had used a photo of their pet dog for the project.

A notable example of this kind of IP skirmish is Shark Cat, where the owner of the Instagram-famous Nala Cat brand fought back after the cat was used without permission in a skyrocketing crypto project. The owner of Nala was unhappy with how their cat was being represented and fought for the project to stop operating. Ultimately, both Nala’s owners and the meme coin project came to a mutual agreement, giving the project an official license to the IP.

We’ve seen another similar example pop up recently when the creator of the iconic Keyboard Cat team gave an official license to two different unofficial meme coins that had used the IP without permission.

While those cases were fought outside of the courts and pertained to IP that the token creator or and CTO team both did not own, similar IP issues could arise if the deployer of a token decides they’re not happy with how their cat, frog, or dog is being depicted.

“[The token creator] would still own the name, image, likeness, and those rights associated with it for the dog, where they could say, ‘Hey, take it down,’” Rossow explained. 

Some CTO teams are actually led by the original deployer of a token. Those looking to launch a successful meme coin will create a fresh wallet, create the Pump.fun token, instantly sell, then log into a new wallet and start pushing the project under a different identity.

Primarily, this is to take advantage of the prominent CTO meta, where many degens won’t invest in a project if the dev wallet is still in the mix—due to distrust in a centralized figure. But does this remove any legal responsibility from the individual?

“If whomever creates this dumps their stuff but rejoins the community, not as the official founder but becomes part of the community,” Rossow told Decrypt, “[then] it would be very difficult—unless there is something registered under that person’s name—to say this one person is responsible for all of this.”

That said, if the individual is involved in illegal activity once rejoining the community, then they will be legally responsible.

“This is not a ‘shortcut’ against accountability,” lawyer and Chief Legal Officer at Bitget, Hon Ng, told Decrypt. “If the original creators’ actions are deemed manipulative, fraudulent, or otherwise illegal, they could still face legal consequences.”

By the letter of the law, CTO teams and meme coin developers could face legal consequences—but it’s another question whether these laws will actually be enforced. Attorney Jacob Martin thinks that due to the innate speculative nature of meme coins, it’s less likely that we’ll see serious legal action in this sector.

“It sure seems like meme tokens are going to face far less scrutiny as they are a bit clearer in the facts of where they sit in the stack,” Martin told Decrypt.

Edited by Ryan Ozawa and Andrew Hayward

In Ukraine on Monday, police arrested a criminal group that allegedly extorted $250,000 in stablecoin Tether (USDT) from a young entrepreneur by posing as law enforcement officials and threatening him with criminal charges for a fabricated crime. 

The four suspects, who were detained by cyber police and the Department of Internal Security of the National Police, face up to 12 years in prison, according to a statement.

In May, the 20-year-old online business founder reported to police that unknown individuals had impersonated law enforcement officers. 

It’s alleged the group intimidated the entrepreneur, accusing him of collaborating with Russia and threatening him with a lengthy prison sentence for treason. They offered to “settle the issue” in exchange for $250,000, which they demanded to be transferred in crypto.

The entrepreneur, fearing legal repercussions, complied with the demands and transferred 250,000 USDT to a crypto wallet controlled by the group. The criminals then quickly moved the stolen funds through a crypto exchange, per the statement.

Cyber police officers tracked the movement of the crypto assets, identifying the suspects who had no actual ties to law enforcement. With the assistance of the Kyiv City Prosecutor’s Office, investigators from the State Police in Kyiv conducted a coordinated operation to apprehend them.

Searches were carried out across Kyiv, Kyiv region, and Cherkasy region, targeting the homes and vehicles of the suspects and their family members. Authorities seized bank cards, computer equipment, mobile phones, luxury cars, fake journalist IDs, ammunition, and cash.

Ukraine police struggle with frequent cases of high-profile crypto crime. In July, Decrypt reported that four men were arrested for kidnap and murder in a case that involved the theft of $170,000 in Bitcoin. A July report from Europol highlighted a Ukrainian cryptojacking scheme that covertly mined over $1.95 million in various crypto. 

Ukraine also hosts plenty more traditional crypto scams. In June, authorities detained 14 people who were working as an organization to run a traditional call center scam operation. 

In 2023, the European Union provided Ukrainian officials from several law enforcement departments with training to help them trace crypto and better investigate criminal cases involving the asset class.

While crime is a challenge, Ukraine is also one of the most enthusiastic adopters of crypto. In the most recent 2023 report, Chainalysis ranked Ukraine just behind the U.S., Vietnam, Nigeria, and India but well ahead of Brazil (9th). UK (14th), Japan (18th), and Canada (19th).

Edited by Sebastian Sinclair

In California, a controversial bill to regulate how AI models are developed and trained is inching closer to law, and many involved in the sector aren’t happy.

California Senate Bill 1047 will require AI companies working on models that cost more than $100 million to have a robust safety framework built into their models. 

The tech industry, whose many businesses are based in Silicon Valley, has reportedly been debating the impact the bill will have on their work. 

SB 1047 would require AI developers to include a kill switch, undertake an annual audit for safety compliance, and not produce, use, or distribute a model that is potentially dangerous.

Elon Musk, whose Grok AI platform has recently been criticized for spreading disinformation, has come out in support of the bill. 

“This is a tough call and will make some people upset, but, all things considered, I think California should probably pass the SB 1047 AI safety bill,” Musk said in a post to X on Monday.

The billionaire tech entrepreneur also noted he has been pushing for greater regulatory oversight, claiming he has broadly advocated for AI regulation for roughly 20 years.

Others, however, are vehemently opposed to the bill, including the company Musk co-founded, OpenAI. 

The San Francisco tech company responsible for creating the popular language learning model, ChatGPT, penned a letter to the bill’s author, Scott Wiener (D-San Francisco), last week claiming it would harm Silicon Valley’s ability to be a global leader in AI.

Andrew Ng, the former head of Google’s deep learning AI research project Deep Brain, also took aim against the bill in June, claiming it would “make builders of large AI models liable if someone uses their models.”

“I’m deeply concerned about California’s proposed law SB-1047,” Ng tweeted at the time. “It’s a long, complex bill with many parts that require safety assessments, shutdown capability for models, and so on.”

If the bill becomes law, AI developers must follow five key rules, which include ensuring they can quickly shut down the model and create a written safety and security plan. They must keep an unedited copy of this safety plan for as long as the model is available, plus an additional five years, and maintain records of any updates.

Starting January 1, 2026, developers would be required to hire an independent auditor annually to check compliance with the law and keep the full audit report for the same duration as the safety plan. 

Developers must also provide the Attorney General access to the safety plan and the audit report if requested. Additionally, developers are prohibited from using or releasing a model for commercial or public use if it poses a significant risk of causing severe harm.

The bill passed an important committee in the Assembly and will be voted on by all Assembly members later this week. The Senate already passed it with strong support in May.

If the Assembly approves it, the bill will go to Governor Gavin Newsom on September 30 to decide whether to veto it or make it law.

Edited by Sebastian Sinclair