Class action lawsuit accuses Uniswap Labs, its investors of allowing fraudulent activity on the DEX protocol

A new class-action lawsuit from a Uniswap user alleges that Uniswap Labs and its investors are culpable for her losses due to a failure to comply with securities laws.

Nessa Risley of North Carolina is alleging a lack of know-your-customer due diligence and failure to register as a broker-dealer with the Securities and Exchange Commission (SEC) allowed scammers to execute pump and dump schemes with the Uniswap protocol. Risley says she and others lost funds as a result of these actors and has accused Uniswap Labs of doing little to root out fraudulent activity.

Plaintiff Risley claims the tokens traded on Uniswap constitute unregistered securities, and Uniswap Labs’ failure to register with the SEC as a broker-dealer and comply with securities laws put investors at risk. Risley argues that had she had access to disclosures consistent with securities laws, she and other investors may have avoided some fallout in markets around tokens including EthereumMax, Bezoge Earth, Matrix Samurai, Alphawolf Finance, Rocket Bunny and BoomBaby.io. The complaint also alleges a lack of KYC or other identification checks “has led to rampant fraud on the exchange.” 

Uniswap Labs is the legal entity that manages the decentralized Uniswap protocol, but as regulators have yet to fully hammer out how to regulate decentralized exchanges, it’s unclear what regulatory burdens rest on entities like Uniswap Labs.

However, regulators may be looking into this area. Last September, reports circulated that the SEC was investigating Uniswap Labs, asking for information on how investors use the Uniswap protocol and how Uniswap Labs markets the platform. 

With Uniswap Labs, the complaint also names Uniswap founder Hayden Adams, and backers Paradigm, AH Capital Management, Andreessen Horowitz and Union Square Ventures.

The lawsuit alleges these backers “together participated in, and/or aided and abetted” Uniswap’s failures to do more to protect customers from scams for the sake of profit. 

“Defendants are well aware of the fraud perpetrated on the Exchange, but have done nothing to stop these activities, even though they could easily do so,” said the complaint. “Instead, Defendants encourage fraudulent conduct by guaranteeing fees on all trades to issuers of tokens on the Exchange. To date, Uniswap has siphoned over $1 billion in fees from its users so that issuers of tokens may continue to profit from their conduct—no matter how fraudulent.”

Uniswap Labs told The Block it plans to fight the case.

“These allegations are meritless and the complaint is riddled with factual inaccuracies,” said a Uniswap Labs spokesperson. “We plan to vigorously defend against this suit.”

Risley is seeking a declaration that Uniswap is in violation of federal securities laws as well as damages, disgorgement and interest to be determined at trial. 

Risley vs Universal by Mike McSweeney on Scribd

Source: https://www.theblockcrypto.com/linked/141853/class-action-lawsuit-accuses-uniswap-labs-its-investors-of-allowing-fraudulent-activity-on-the-dex-protocol?utm_source=rss&utm_medium=rss