- The Second Circuit Court upholds dismissal of class action lawsuit against Uniswap over scam tokens.
- Court rules that smart contract developers cannot be held liable under Exchange Act for platform misuse.
- Only state law claims from New York, North Carolina, and Idaho will be reheard in district court.
- Decision follows SEC’s recent termination of its investigation into Uniswap’s operations.
- Judge likened the case to holding payment apps responsible for illegal transactions.
The U.S. Court of Appeals for the Second Circuit has upheld a lower court’s decision to dismiss most claims in a class action lawsuit against Uniswap Labs, marking a significant victory for decentralized finance platforms.
The lawsuit, initiated in 2022 by investors against Uniswap Labs and its venture capital backers, claimed the company bore responsibility for losses incurred through scam tokens traded on its decentralized exchange protocol. Judge Katherine Polk Failla of the Southern District of New York initially dismissed the case in 2023.
In their ruling, the Second Circuit judges emphasized that it “defies logic” to hold smart contract developers liable for third-party misuse of their platform. This interpretation could set a precedent for future cases involving decentralized exchanges, which operate through automated market-making protocols rather than traditional intermediaries.
The plaintiffs appealed the dismissal in September 2023, but the appellate court maintained the rejection of claims under both the Securities Act and Exchange Act. The only surviving elements are state law claims from New York, North Carolina, and Idaho, which will return to district court for further consideration.
This legal victory comes at a particularly opportune time for Uniswap, following the U.S. Securities and Exchange Commission’s recent decision to conclude its investigation into the platform without taking enforcement action. The SEC had been examining whether Uniswap operated as an unregistered securities exchange and broker.
The case highlights the evolving legal landscape around decentralized finance platforms, with courts increasingly distinguishing between platform developers and those who misuse their technology for fraudulent purposes. Judge Failla’s analogy comparing the situation to holding Venmo or Zelle responsible for illegal transactions has resonated with higher courts, potentially influencing future regulatory approaches to decentralized finance.
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