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Judge Throws out Uniswap’s Class-action Lawsuit Alleging Token Fraud Losses

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The court demonstrated an uncommon mastery of DeFi technology and advised the defendants to take their grievances to Congress instead.

Plaintiffs who claimed they lost money as a result of scam tokens on the decentralized cryptocurrency exchange filed a class action lawsuit against Uniswap Labs and its CEO, foundation, and venture capital supporters. The lawsuit was rejected by the United States District Court for the Southern District of New York. The Securities and Exchange Commission’s complaint against Coinbase is being heard by the same judge who rendered the dismissing decision, Katherine Polk Failla.

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Six people who purchased tokens on Uniswap between December 2020 and March 2022 filed the lawsuit. They claimed that Uniswap Labs controlled liquidity pools on the protocol, including those made by the con artists they lost money to, on behalf of a “nationwide class of users”.

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April 2022 saw the filing of the lawsuit. Under the Securities Act of 1933 and the Securities Exchange Act of 1934, the defendants sought the revocation of the (smart) contracts they had signed in order to purchase the fraudulent tokens.

The order dismissing the suit against Uniswap. Source: U.S. District Court for the Southern District of New York

The plaintiffs contended that Uniswap’s conduct supported their claim since it used routers under its control to process protocol transactions, retained “liquidity provider funds and newly created tokens in Uniswap’s proprietary core contracts,” and issued liquidity tokens when pools were created. In addition, even though they had no real knowledge of token ownership, the plaintiffs claimed that the defendants “likely” possessed at least 88% of the Uniswap governance tokens.

The court stated in her ruling that neither party was aware of the identity of the con artists, and instead of bringing an unlawful solicitation claim against the con artists, the plaintiffs were bringing an online statement claim against the defendants:

“Undaunted, they now sue the Uniswap Defendants and the VC [venture capital] Defendants, hoping that this Court might overlook the fact that the current state of cryptocurrency regulation leaves them without recourse, at least as to the specific claims alleged in this suit.”

The court did not ignore that information:

“The Court declines to stretch the federal securities laws to cover the conduct alleged, and concludes that Plaintiffs’ concerns are better addressed to Congress than to this Court.”

Additionally, the judge made general remarks. over the claims made by the plaintiffs over the core and router contracts, she wrote:

“[I]t defies logic that a drafter of computer code underlying a particular software platform could be liable under Section 29(b) [ of the Exchange Act] for a third-party’s misuse of that platform.”

Additionally, the judge made general remarks. The court noted the unsuccessful class action brought against Coinbase in 2022 for unregulated securities sales in her rationale, according to the author of the plaintiffs’ claims about the core and router contracts. The case was thrown out with prejudice, which prevents a retrial.

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The action, according to community comments, demonstrated a significant depth of understanding of decentralized finance.CRYPTOCASTER® - DECENTRALIZED FREEDOM!


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