The U.S. District Court for the Southern District of New York dismissed a class action lawsuit against Uniswap that alleged that the decentralized exchange, its CEO, and other backers were responsible for losses related to certain scam tokens on the platform.
The suit was brought by six plaintiffs in April 2022, claiming to represent a “nationwide class of Uniswap users” that were impacted by rug pulls on certain scam tokens that were traded on the DEX. The lawsuit alleged that Uniswap was an unregistered broker and dealer, and offered unregistered securities that allowed the scam token issuers to take advantage of users.
District Judge Katherine Polk Failla, the same judge who is overseeing the U.S. Securities and Exchange Commission’s (SEC) case against crypto exchange Coinbase, dismissed the plaintiffs’ complaint in full.
“Due to the Protocol’s decentralized nature, the identities of the Scam Token issuers are basically unknown and unknowable, leaving Plaintiffs with an identifiable injury but no identifiable defendant,” stated Failla.
She further added that the court declined to “stretch federal securities laws to cover the alleged conduct” and ruled that the plaintiffs’ concerns would be better addressed to Congress.
Putative Uniswap class action dismissed by Judge Failla in SDNY. Among other things, challenges notion that software platform can be held liable for damage caused by third party misuse of software code. pic.twitter.com/8wvsXmtlrR
— Palley (@stephendpalley) August 30, 2023
“[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,” she said.
Although the plaintiffs claim that Uniswap stood to gain in profit from the fees earned through the trading of these tokens, Failla found that the lack of a centralized ownership structure at Uniswap made it hard to make this point.
She also agreed with Uniswap’s likening of 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,” in its motion to dismiss the lawsuit.
Failla compared the suit to someone attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer.