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Uniswap lawsuit over fraudulent token sales dismissed by federal judge

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A federal judge in New York dismissed a class-action lawsuit against decentralized exchange Uniswap, ruling that the platform was not liable for fraudulent token sales conducted on it. The judge emphasized that due to Uniswap's decentralized nature, the identities of fraudulent token issuers were unknown, leaving the plaintiffs with no identifiable defendant to blame for their losses.
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  • A federal judge in New York dismissed a class-action lawsuit against decentralized exchange Uniswap, ruling that the platform was not liable for fraudulent token sales conducted on it.
  • The judge emphasized that due to Uniswap’s decentralized nature, the identities of fraudulent token issuers were unknown, leaving the plaintiffs with no identifiable defendant to blame for their losses.

A federal judge in New York has dismissed a class-action lawsuit against Uniswap, ruling that the decentralized exchange was not liable for fraudulent token sales conducted on its platform. The decision has far-reaching implications for the DeFi sector and the application of existing securities laws.

The lawsuit had accused Uniswap of being complicit in fraud and violating securities laws by facilitating the sale of unregistered securities. Plaintiffs argued that Uniswap, its founder Hayden Adams, and other associated entities were responsible for “rampant fraud” on the exchange. They also pushed for Uniswap to register with the Financial Industry Regulatory Authority. However, Judge Katherine Polk Failla, who also oversees the U.S. Securities and Exchange Commission’s case against Coinbase, found some of the claims “devoid of factual support.”

The ruling aligns with the positions the cryptocurrency industry has long held. Bill Hughes, an attorney at Consensys, commented that the decision was a “major event” and could impact the application of existing securities laws to decentralized finance (DeFi) more directly than previous cases involving Ripple or TerraForm Labs. 

The judge’s reasoning

Judge Failla acknowledged that since Uniswap is decentralized, the individuals responsible for issuing fraudulent tokens are essentially anonymous and cannot be identified. This means that while the plaintiffs have suffered a loss, there is no specific defendant they can hold accountable. Additionally, the current cryptocurrency regulations prevent the plaintiffs from holding Uniswap responsible for their losses. The judge suggested that any concerns regarding federal securities laws should be directed to Congress rather than the court.

The court found that the smart contracts used on Uniswap were lawful, comparing the plaintiff’s claims to holding a “developer of self-driving cars liable for a third-party’s use of the car to commit a traffic violation or rob a bank.” Marvin Ammori, Uniswap’s chief legal officer, praised the win, emphasizing that the ruling showed that Uniswap’s protocol has primarily lawful use and that developers aren’t liable when others misuse it.

The decision comes at a time when the regulatory landscape surrounding cryptocurrencies remains uncertain. Despite various lawsuits and claims by the SEC, there has yet to be a “definitive determination” on whether certain crypto assets are commodities, securities, or other types of financial instruments. The court concluded that the complaints alleged by the plaintiffs were not applicable until a framework for liability exists, dismissing not only the federal claims but also the state claims.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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