CEO Rug Pull: Employee Rights & Legal Options When Startup Leadership Disappears (2026)

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Understanding a Rug Pull: What Happened and Why It Matters

A rug pull occurs when company leadership, typically founders or executives, disappear with company assets or deliberately devalue a company to their personal benefit. In this case, a startup with 110 employees worked for two years on equity and promises alone. When their product finally launched successfully and generated substantial revenue, the CEO and Head Engineer vanished—while holding 99% of the company's tokens worth eight figures.

This scenario represents a catastrophic breach of fiduciary duty and potentially constitutes fraud. The employees, who invested their labor under the assumption of fair equity distribution, now face a situation where the leadership team appears to have positioned themselves to capture virtually all value while leaving everyone else with worthless compensation.

What makes this particularly egregious is that the company built a legitimate software product with real utility, not a speculative asset. The product generated millions in fiat revenue immediately, proving market viability. The disappearance wasn't due to business failure—it was a deliberate action by leadership after success became evident.

Legal Claims You May Have Against the Company and Leadership

Employees in this situation have several potential legal avenues worth exploring with an employment attorney. Here are the primary claims:

Breach of Fiduciary Duty

Directors, officers, and controlling shareholders owe fiduciary duties to the company and its shareholders. A CEO who owns massive token holdings while other shareholders (employees with equity) are diluted or excluded may have breached these duties. The fiduciary duty requires acting in good faith and in the company's best interest, not personal enrichment at others' expense.

Securities Fraud

If employees were promised equity or token compensation based on misrepresentations about ownership structure or future value distribution, this could constitute securities fraud. The SEC and state regulators take dim views of material omissions—like failing to disclose that 99% of tokens were held by two executives.

Wage and Hour Violations

This is crucial: employees who worked without proper compensation may have claims under wage and hour laws. Many states require minimum wage payment regardless of startup status. If you received only equity with no salary, you may have wage claims depending on your jurisdiction and employment classification.

Fraud and Misrepresentation

If the CEO promised fair equity distribution and deliberately structured the token allocation to exclude employees, this constitutes actionable fraud. The promise itself was the inducement for your labor—if that promise was false, you have grounds for legal action.

Unjust Enrichment

Even without a formal contract, courts recognize that accepting benefits while denying fair compensation is unjust. The CEO and Head Engineer benefited from 110 employees' work and are now attempting to capture all value created.

Steps to Take Immediately

Document Everything

Before taking any legal action, preserve all evidence. This includes:

• Employment offer letters or agreements mentioning equity
• Communications about token allocation promises
• Company announcements about launch and revenue
• Screenshots showing the CEO and Head Engineer's 99% token holdings
• Messages, emails, or Slack conversations with leadership about compensation
• Work records showing your contributions and hours
• Company cap table or equity documents
• Any written statements about future token distribution

Store these in multiple secure locations. If the company's systems are controlled by the missing executives, you may lose access quickly.

Consult an Employment Attorney

This situation requires professional legal counsel experienced in startup disputes and securities law. An attorney can:

• Evaluate which claims apply to your specific situation
• Assess your jurisdiction's relevant laws
• Determine statutes of limitations
• Estimate potential recovery amounts
• Advise on class action vs. individual action

Many employment attorneys work on contingency in fraud cases, meaning you pay nothing unless you recover damages.

Consider Collective Action

With 110 affected employees, a class action lawsuit becomes viable and potentially more powerful. Class actions can recover damages on behalf of all similarly situated employees, reducing individual litigation costs and increasing pressure on defendants. Connect with other employees to understand their situations and consider hiring a class action attorney.

Report to Regulators

File complaints with relevant agencies:

• SEC: Securities fraud involving token offerings
• State Attorney General: Consumer protection and fraud divisions
• State Labor Commissioner: Wage and hour violations
• Department of Labor: If federal wage laws were violated

Regulatory complaints create official records and can trigger investigations that strengthen your civil claims.

Compensation Comparison: Legal Remedies

Realistic Expectations and Challenges

While your legal case appears strong, several challenges exist:

Asset Recovery

Even if you win a judgment, collecting it depends on the CEO and Head Engineer having recoverable assets. If they've moved funds to untraceable cryptocurrency wallets or foreign accounts, enforcement becomes difficult. An attorney can use discovery to trace assets.

Jurisdiction Issues

If the executives are located internationally or have hidden their whereabouts, serving them and enforcing judgments becomes complicated. This is where regulatory involvement helps—agencies have more resources for international cooperation.

Token Volatility

Calculating damages based on token value is complex because crypto assets are volatile. Courts typically use the value at the time of the fraudulent conduct or at time of discovery, but defendants will argue for lower valuations.

Burden of Proof

In civil cases, you need to prove your claims by a "preponderance of the evidence"—more likely than not. For fraud claims, some jurisdictions require "clear and convincing evidence." Defendants will argue they simply changed their minds or that token allocation was always their right.

Key Takeaways

• A CEO disappearing after successfully launching a company product while holding 99% of tokens likely violates multiple laws including fiduciary duty, securities fraud, and wage laws
• Document all evidence immediately—employment agreements, equity promises, communications, and revenue proof
• Consult an employment attorney experienced in startup disputes and securities law, ideally on a contingency basis
• Explore class action options with other affected employees to increase leverage and reduce individual costs
• File complaints with the SEC, state attorney general, and labor department to trigger regulatory investigations
• Realistic recovery takes 12-48 months depending on claim type, but multiple legal theories increase your chances of success
• Asset recovery and jurisdiction issues may complicate enforcement, but successful judgments create a foundation for collection efforts

Frequently Asked Questions

Can we pursue legal action if we only have equity, not written contracts?

Yes. Verbal promises of equity, communicated via email, Slack, or meetings, can constitute binding contracts in many jurisdictions. Even without formal documentation, fraud and breach of fiduciary duty claims don't require written contracts. An oral promise to compensate employees with equity that was made to induce their labor is legally enforceable.

Is a class action better than individual lawsuits?

Generally yes, for several reasons: class actions reduce individual legal costs through shared representation, increase settlement leverage against defendants, prevent the company from picking off individual plaintiffs with settlement offers, and allow recovery for all similarly situated employees. However, class certification requires the court to find common issues of law and fact. An attorney can advise whether your situation qualifies.

What if the company files for bankruptcy?

If the startup files bankruptcy, you'd have employee wage claims that rank higher in priority than unsecured creditors. However, if most assets are in tokens held by the CEO personally (rather than company assets), bankruptcy won't help you recover from those personal holdings. This is why pursuing personal liability against the CEO and Head Engineer is critical—their personal assets may be reachable even if the company is insolvent.