Is Rug Pulling Illegal? Laws, Prosecutions and What to Do

Yes, rug pulling is illegal when it involves deception. If a team raises money with promises it never meant to keep and then takes the funds, prosecutors in the US, UK and EU treat that as fraud, and US cases have been charged as wire fraud, securities fraud and money laundering. A project that simply fails or is abandoned without lies is a different matter, and that is where most of the legal grey area sits.

A rug pull is when a crypto project's team takes investors' money or liquidity and disappears, leaving a near-worthless token or NFT. For the mechanics, read what is a rug pull; this guide covers only the law.

The short answer: deception is what makes it a crime

No law makes a token falling to zero a crime. The law punishes obtaining money by false representations. In its 2022 Frosties case the US Department of Justice said a "rug pull" is where a creator "solicits investments and then abruptly abandons a project and fraudulently retains the project investors' funds", as described in the SDNY press release of 24 March 2022. The word that matters there is "fraudulently".

So the core questions are: were statements about the roadmap, locked liquidity, team allocation or use of funds false when made; did the team intend to deceive; did buyers pay because of them; and were the proceeds taken or hidden? If yes, it is a "hard" rug pull and usually fraud wherever you are. If the team made no false promises and the project just died, a criminal case is much harder, even if holders lost everything.

Which US laws apply to a rug pull

US authorities have several overlapping tools, chosen by the facts and how the token is classified.

Wire fraud and conspiracy

The main tool is 18 U.S.C. § 1343, wire fraud: using internet or other wire communications to carry out a "scheme or artifice to defraud". It carries up to 20 years in prison per count. Because rug pulls are marketed and paid for online, almost every hard rug fits; Frosties, Mutant Ape Planet and Vault of Gems were all charged as wire fraud or conspiracy to commit it. Wire fraud does not require the token to be a security.

Money laundering

Hiding the proceeds through mixers, chain hops or many wallets adds money laundering charges. In the Undead Tombstone case, the Middle District of Florida said proceeds were sent through Tornado Cash and across chains before being cashed out to a bank account.

Securities fraud (SEC)

Where a token was sold as an investment contract, the SEC can sue for securities fraud. In January 2025 it charged blockchain engineer Eric Zhu over the "Game Coin" (GME) token, alleging he kept liquidity provider tokens unlocked, despite public claims that liquidity was "locked", and used them to withdraw liquidity worth about $553,000. He agreed, without admitting or denying the allegations, to pay $672,992 plus a $150,000 penalty, subject to court approval (SEC Litigation Release 26223).

One caveat for meme coins: in February 2025 the SEC's Division of Corporation Finance said that typical meme coins are not securities, so buyers are "not protected by the federal securities laws". The same statement adds that fraud in meme coin sales "may be subject to enforcement action or prosecution by other federal or state agencies". In practice that means the DOJ, using wire fraud.

Commodities fraud (CFTC)

The CFTC treats virtual currencies as commodities and can pursue fraud involving them even on spot markets. A federal court confirmed that authority in the My Big Coin case on 26 September 2018, as the CFTC announced. CFTC cases are civil.

Rug pulls under EU and UK law

National fraud law

In Europe, a rug pull is mostly prosecuted under ordinary national criminal law. In England and Wales, section 2 of the Fraud Act 2006 makes it an offence to dishonestly make a false representation intending to make a gain or cause a loss, and a representation is false if it is "untrue or misleading" and the person knows it might be. The maximum sentence on indictment is 10 years. EU countries have equivalents; Germany's Section 263 of the Criminal Code, for example, sets up to five years for fraud and up to 10 in especially serious cases.

MiCA: white paper liability and market abuse

The EU's Markets in Crypto-Assets Regulation, Regulation (EU) 2023/1114, has applied in full since 30 December 2024 and adds two relevant layers (see our MiCA explainer for the wider rules):

• Civil liability for misleading white papers (Article 15). If an offeror's crypto-asset white paper contains information that is "not complete, fair or clear or that is misleading", the offeror and its management can be liable to holders for resulting losses, and contractual exclusions of that liability have no legal effect.
• Market abuse rules (Title VI, Articles 86 to 92). These ban insider dealing (Article 89) and market manipulation (Article 91), including spreading false or misleading information about a crypto-asset and "securing a dominant position over the supply of, or demand for" one. They apply to crypto-assets admitted to trading, or where admission has been requested, wherever the conduct happens.

The limit is scope: a token launched anonymously on a decentralised exchange and never admitted to trading on a MiCA platform may fall outside the market abuse title. National fraud law still applies.

Hard rug vs soft rug: where the legal grey areas are

A hard rug is a sudden theft: liquidity drained, a mint cut short, a contract backdoor, a website that vanishes on sale day. A soft rug is slower: the team sells over weeks or lets the project fade. Whether that is a crime depends on what was said:

• Selling disclosed allocations. If the team's share and vesting schedule were published and followed, selling is generally lawful, even if painful for holders. See token unlocks explained.
• Hidden allocations. Secretly holding tokens while telling buyers otherwise is different. In the Kishu Inu indictment announced on 7 October 2026, prosecutors allege the creator made false statements while selling tokens he and others had "secretly allocated to themselves", for personal profit of about $9 million. He is presumed innocent.
• "Liquidity locked" claims. Saying liquidity is locked while keeping access to it was central to the GME and SafeMoon cases.
• Abandoned roadmaps. Failing to deliver a roadmap is not fraud by itself. It becomes fraud if prosecutors can show the team never intended to deliver, as alleged in Vault of Gems.
• Disclaimers. "No utility, entertainment only" language helps a promoter argue nothing was promised, but not if they also made specific false claims.

Anonymity is not a defence either: on-chain flows can be traced, as blockchain analytics explains.

Real rug pull prosecutions and their outcomes

From official releases. Charges are allegations; where no outcome is listed, we found no official record of one.

Outside the US, an Istanbul court on 7 September 2023 sentenced Thodex founder Faruk Fatih Özer and his two siblings to 11,196 years each for aggravated fraud, leading a criminal organisation and money laundering after the exchange went offline in April 2021, as Hürriyet Daily News reported. Thodex was an exchange collapse rather than a token rug.

Many rugs are never prosecuted. AnubisDAO lost about $60 million of investors' ETH in October 2021, according to Decrypt, and we could find no public record of criminal charges in that case.

What to do if you have been rug pulled

1. Preserve evidence now. Save contract and wallet addresses, transaction hashes, and screenshots of the website, roadmap and social posts before they disappear.
2. Report it. In the US, file with the FBI's Internet Crime Complaint Center (IC3). In England, Wales and Northern Ireland, use Report Fraud, which replaced Action Fraud from 4 December 2025 (0300 123 2040); in Scotland, call Police Scotland on 101. In the EU, report to your national police.
3. Check for an open case. Press releases often name a victim contact: Vault of Gems lists an HSI email, and the FBI has a form for Kishu Inu investors.
4. Ignore "recovery" offers. Rug pull victims are targeted by fake fund-tracers who charge fees. Read crypto recovery scams before replying to anyone.

Money is sometimes returned through forfeiture and restitution after a conviction, but that can take years.

How to lower your odds of being rugged

The law works after the loss. Before buying, check who controls the contract and liquidity, whether team allocations are disclosed and vested, and whether "liquidity locked" can be verified on-chain. See how to check a DeFi protocol is safe and crypto scams in 2026.

Frequently asked questions

Is rug pulling illegal?

A hard rug pull, where developers raise money on false promises and then take it, is treated as fraud in the US, UK and EU, and prosecutors have charged it as wire fraud, securities fraud and money laundering. Abandoning a project is not automatically a crime; the question is whether buyers were deceived.

Is a soft rug pull illegal?

Sometimes. Quietly selling a large token allocation or walking away from a roadmap can be lawful if nothing false was said. It becomes fraud when the team lied about locked liquidity, hidden allocations or plans it never meant to deliver, as US prosecutors alleged in the SafeMoon and Kishu Inu cases.

Can you go to jail for a rug pull?

Yes. US wire fraud carries up to 20 years in prison. SafeMoon's former CEO was sentenced to 100 months on 10 February 2026 for a scheme involving a liquidity pool investors were told was locked. In England and Wales, fraud under the Fraud Act 2006 carries up to 10 years.

Are meme coin rug pulls legal because meme coins are not securities?

No. The SEC's staff said in February 2025 that typical meme coins are not securities, but the same statement notes that fraud in meme coin sales can still be prosecuted by other federal or state agencies. Wire fraud law does not depend on whether the token is a security.

Where do I report a rug pull?

In the US, file a complaint with the FBI's IC3 at ic3.gov. In England, Wales and Northern Ireland, use Report Fraud, which replaced Action Fraud from 4 December 2025; in Scotland, call Police Scotland on 101. Elsewhere, report to your national police, and keep wallet addresses, transaction hashes and screenshots.

Keep reading

• What is a rug pull?
• Crypto recovery scams
• Crypto scams in 2026
• How to check a DeFi protocol is safe
• Token unlocks explained

This article is educational and is not legal or financial advice. Laws differ by country; ask a qualified lawyer about your situation. Case details are from official DOJ, SEC, CFTC and IRS releases, EUR-Lex and legislation.gov.uk, checked on 12 October 2026. Charges are allegations and defendants are presumed innocent unless proven guilty.