The judge displayed uncommon knowledge of DeFi technology and advised the defendants to address their complaints to Congress.
The United States District Court for the Southern District of New York dismissed a class action lawsuit against Uniswap Labs and its CEO, foundation, and venture capital supporters by plaintiffs who claimed they lost money on the decentralized cryptocurrency exchange due to fraudulent tokens.
Judge Katherine Polk Failla, who issued the dismissal, also presided over the SEC’s lawsuit against Coinbase. Six individuals who purchased tokens on Uniswap between December 2020 and March 2022 filed the lawsuit.
They argued on behalf of a “nationwide class of users” ” that Uniswap Labs controlled liquidity pools on the protocol, including those created by the con artists they lost money to.
The lawsuit was initially submitted in April 2022. Under the Securities Act of 1933 and the Securities Exchange Act of 1934, the defendants demanded rescinding the (brilliant) contracts they engaged in to purchase the scam tokens, with compensation.
Plaintiffs argued that their claim was supported by the facts that Uniswap held “liquidity provider funds and newly created tokens in Uniswap’s proprietary core contracts,” and used routers to process protocol transactions, and issued liquidity tokens when pools were created.
In addition, the plaintiffs concluded that the defendants “likely” held at least 88% of the Uniswap governance tokens, despite their ignorance of token ownership.
The judge stated in her order that neither party knew the scammers’ identities, and instead of suing the scammers for unlawful solicitation, the plaintiffs sued the defendants for statements made on social media.
“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 also noted that:
“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.”
The judge commented in more general terms as well. Writing about the plaintiffs’ allegations concerning the core and router contracts, she noted:
“[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.”
In her reasoning, the judge cited the unsuccessful class action brought against Coinbase in 2022 for unregulated securities sales. She dismissed the case with prejudice, meaning the case cannot be retried.
Community commenters noted with pleasure that the decision showed a considerable depth of understanding of decentralized finance.
Judge overseeing SEC v. Coinbase just dismissed a class action against Uniswap.
Notice the language:
“Due to the Protocol’s decentralized nature… no identifiable defendant.”
“…the fact that the current state of cryptocurrency regulation leaves them without recourse.” pic.twitter.com/CMoXzmjiWh
— Mike Wawszczak (@mikewawszczak) August 30, 2023