Uniswap Faces Lawsuits for Unregistered Offer and Sale of Digital Tokens

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Uniswap Faces Lawsuits for Unregistered Offer and Sale of Digital Tokens
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Uniswap user Nessa Risley from North Carolina invested about $10,400 in low-cap digital tokens like EthereumMax, Matrix Samurai and Rocket Bunny between May and July last year. The trader has since experienced “significant losses” and sought justice through legal action.

On April 4, Risley launched legal proceedings accusing Uniswap of failing to conduct identity checks and imposing securities restrictions on “fraudsters” who use the platform to list digital tokens similar to scams to conduct rampant fraud​​​.

Uniswap accused of selling unregistered securities

Two U.S. law firms have filed a lawsuit against Uniswap, suing the decentralized exchange and its backers, including prominent venture capital firms such as A16z and Paradigm, alleging that it “issuing and selling securities in the form of digital tokens violates the Securities Law”.

The lawsuit brought by Kim & Serritella LLP and Barton LLP seeks to invite victims like Risley, who have lost money on Uniswap since last April, to join a class-action lawsuit against the platform’s founders and developers. It alleges that Uniswap failed to disclose a “registration statement” including information about the investment risks associated with the securities they sold to users.

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Additionally, the class-action lawsuit states that Uniswap Labs allows illegal activities such as “pumping the trash” and “pulling the carpet” on its platform. One of the main allegations is against the DEX’s fee structure, which, according to the statement, encourages fraud by paying liquidity providers a portion of each transaction fee.

Meanwhile, Uniswap charges developers a fee and has the ability to keep some of the fee for itself. The conflicts of interest involved could make Uniswap a silent promoter of scams.

SEC eyes Uniswap

The aforementioned lawsuit is not the first time that the decentralization principles of DeFi protocols have been challenged. In January, the gamified cryptocurrency savings protocol PoolTogether faced a legal challenge from a software engineer named Joseph Kent, who claimed the protocol’s practices were essentially a form of lottery prohibited by New York law.

Last September, the U.S. Securities and Exchange Commission launched an investigation into Uniswap Labs as the top U.S. securities regulator sought to determine how customers use the exchange, how it is marketed and how it works in general. Previously, SEC Chairman Gary Gensler outlined concerns about DeFi protocols, which he believes can be categorized as the type of entities the Commission regulates.

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