Uniswap Is Facing Legal Action For the Unregistered Offer & Sale of Digital tokens
Between May and July of last year, Nessa Risley, a Uniswap user from North Carolina, invested approximately $10,400 in low-cap digital tokens such as EthereumMax, Matrix Samurai, and Rocket Bunny. Since then, the trader has suffered “significant losses,” and he has sought justice through legal action.
Risley filed the lawsuit on April 4th, stating that Uniswap failed to conduct identification checks and apply securities restrictions on “fraudsters” who use the site to advertise scam-like digital currencies for rampant fraud.
Uniswap Has Been Accused Of Selling Unregistered Securities
Two US law firms have sued Uniswap and its investors, including well-known venture capital firms like A16z and Paradigm, for “violating securities regulations by issuing and selling securities in the form of digital tokens.”
The case, filed 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 against the platform’s founders and developers. It claimed that Uniswap failed to disclose “registration statements,” which included information about the risk of the linked investments for the securities sold to users.
Furthermore, the class action claims that Uniswap Labs has permitted illegal practices such as “pump and dump” and “rug pulls” to take place on its platform. One of the primary accusations is that DEX’s cost structure encourages fraud by paying liquidity providers a percentage of the charge for each trade. Meanwhile, Uniswap collects developer fees, with the option of keeping a percentage of those revenues for itself. Due to the conflicting interests involved, Uniswap may be viewed as a silent facilitator of scams.
SEC Is Eyeing on Uniswap
The previous case is not the first to call into question the decentralized structure of DeFi protocols. PoolTogether, a gamified crypto savings system, was legally challenged in January by a software programmer called Joseph Kent, who claimed the protocol’s practice is effectively a type of lottery, which is illegal under New York law.
The SEC started an inquiry into Uniswap Labs last September, as the top US securities watchdog sought to establish how clients used the exchange, how it was advertised, and how it operated in general. Previously, SEC Chairman Gary Gensler expressed worries about DeFi protocols, which he believed may be classed as the types of companies overseen by the Commission.
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