A United States District Judge has rejected a lawsuit brought forth by a group of investors against Uniswap. The group took action against Uniswap after buying tokens on the decentralized protocol, that allegedly turned out to be a scam.
The Judge declared that the current state of cryptocurrency regulations doesn’t provide a basis for their case.
Uniswap Investors Claim The Tokens Are Securities
United States District Judge Katherine Failla quashes a group of six investors’ claim against Uniswap, its CEO and venture capital funders in a recent court filing.
The investors allege tokens they bought on the protocol between December 2020 and March 2022 turned out to be fraudulent. They assert this led to financial losses. The cohort reside all across the world, from North Carolina and Idaho, to New York, North Carolina and Australia.
They raised their claim under federal securities laws. The group assert that the filing was based on the belief that the tokens, allegedly scam tokens, qualify as securities. This implies that the Uniswap Protocol is an exchange platform for trading securities. Uniswap, however, disagrees with being labeled as an “exchange,” or “broker or dealer.
Recently, the United States Securities and Exchange Commission (SEC) and several crypto companies have been debating over what counts as a security. After a two-year long lawsuit, the SEC and Ripple settled a similar matter.
The court decided that Ripple’s token, XRP, isn’t considered a security for regular investors, but it still is for big institutional investors.
The SEC is contesting the decision about regular investors, and the outcome will be known in Q2 2024. Alongside this, the SEC is taking legal action against crypto exchanges Binance and Coinbase. It alleges both have been selling securities without a license to do so.
Victims Remain Unprotected Amid Regulatory Absence
In the Uniswap lawsuit, Judge Failla acknowledged the investors claims that the tokens in this matter were “bona fide” securities. However, the recognition did not grant them any better legal position in relation to their case against Uniswap and associates.
“The court dismisses the complaint in full,” the court filing declares. It explains that just because the investors bought the scam tokens on Uniswap, does not mean the decentralized protocol itself is liable:
“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.”
Judge Failla cites the lack of regulatory clarity in the crypto industry does not help their case in retrieving funds:
“Undaunted, they now sue the Uniswap Defendants and the VC 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.”
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