Uniswap Labs, VC backers cleared of liability in scam token case as judge dismisses complaint

A judge for the United States District Court of Southern New York dismissed a class action suit against Uniswap in a filing dated Aug. 30.

The lawsuit, which targeted Uniswap Labs as well as venture capital defendants Paradigm, Andreessen Horowitz, and USV, claimed that the plaintiffs suffered financial losses due to investing in scam tokens traded via Uniswap’s decentralized exchange. The plaintiffs also argued that Uniswap Labs violated federal securities law and state law.

However, Judge Katherine Polk Failla wrote in her opinion that, while the court accepted that the scam tokens in question were indeed fraudulent, it lacked the authority to hold Uniswap Labs and its backers accountable for losses. The “contracts” in question, which refer to Uniswap’s smart contracts, were deemed by the court as peripheral to the fraudulent token activity and did not violate securities laws directly.

Inadequacies in the system

The court also ruled that Uniswap did not solicit purchases or transfer titles of the specific scam tokens in question, which are conditions necessary to establish liability under U.S. statute. Broad claims that Uniswap is “secure” were deemed insufficient to demonstrate solicitation of the scam tokens. The court also dismissed control person liability claims due to the absence of a primary securities law violation.

Concluding that the court found no legal avenue to hold Uniswap Labs or the VC firms accountable under federal securities laws, Judge

“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.”

Despite dismissing the suit, the judge suggested that Congress could address issues related to anonymity that are “troublesome enough to merit [further] regulation.”

She also noted that the SEC could address “gray areas” in securities law, citing statements from SEC chair Gary Gensler in September 2021 suggesting that DeFi projects were under greater scrutiny. The SEC began an investigation into Uniswap Labs at that time but apparently did not take further action.

Uniswap Labs chief legal officer (CLO) Marvin Ammori endorsed the legal victory. He said on Twitter/X that Uniswap “has primarily lawful use” and asserted that protocol developers are not liable when customers misuse its services.

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