The investors allege tokens they bought on the protocol between December 2020 and March 2022 turned out to be fraudulent
Uniswap was sued by a group of investors following a series of scam tokens bought on their platform.
A US District Court Judge has ruled in favour of the decentralised exchange.
Judge quashes suit against Uniswap
US Southern District Court of New York Judge Katherine Faila has dismissed a suit filed by six investors claiming against Uniswap, its CEO, and Venture Capital funders in a recent court filing.
The court held that under the current securities law, Uniswap cannot be held liable for any damage caused by third parties misusing the protocol.
In April 2022, a group of investors filed a lawsuit against the exchange. They alleged that they bought tokens on the exchange between December 2020 and March 2022 which turned out to be fraudulent tokens. They asserted that as a result, they lost money. One of the investors, Nessa Risley, lost around $10,000 to buying tokens like Boom baby, Matrix Samurai, Rocket Bunny, etc .
The investors raised their claims under the securities law, claiming that Uniswap sold unregistered securities and failed to register as an exchange or broker-dealer entity.
Judge Faila, who is also the judge in charge of the SEC V. Coinbase case said: “this case is more like an effort to hold a developer of self-driving cars liable for a third party’s use of the car to commit a traffic violation or to rob a bank”
The court asserted that Uniswap could not be held liable for tokens listed on its platform or who interacts with such tokens.
The court dismissed the complaint in full.
The judge, however, acknowledged the difficulty the judgement may spell because the identity of token issuers on a decentralised exchange was unknown. She noted that the lack of regulatory clarity in terms of crypto was also not helping.
“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,” the judge said.
Judge: Ethereum is a commodity
Judge Faila also wrote that Ethereum and Bitcoin were not securities, but commodities.
This reasoning contributed to her dismissing the case, as she wasn’t convinced that the Uniswap tokens sold to investors were subject to the Exchange Act.
This decision comes at an interesting time when the US Securities and Exchange Commission (SEC) is on multiple battlefronts with Coinbase, XRP, Binance, etc. SEC Chair Gary Gensler has maintained “that everything other Bitcoin” is a security.
Meanwhile, the Commodities Futures Trading Commission (CFTC) has also claimed that Ethereum and other cryptocurrencies are commodities. This was according to a lawsuit filed against Binance in March for alleged Commodore Exchange Act violations.
The conflicting positions of regulators is made harder to define by the lack of regulatory clarity with legislators divided on the status of cryptocurrencies.
Multiple bills are underway with the aim to divide the authorities granted to different regulators. Prominent among them is the Financial Innovation and Technology for the 21st Century Act, which aims to create a process for categorising cryptocurrencies into either securities or commodities.
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