Morrison Cohen Wins Groundbreaking "Case of First Impression" for Uniswap Foundation

On August 29, 2023, the U.S. District Court for the Southern District of New York granted motions to dismiss by six Defendants allegedly associated with the decentralized cryptocurrency exchange Uniswap Protocol in a putative class action by individuals who incurred losses after allegedly purchasing various “scam tokens” that were issued and traded on the Protocol. Those Defendants included the developers of the Uniswap Protocol and various venture capital investors, as well as Morrison Cohen client Uniswap Foundation, a non-profit formed to support the growth, decentralization and sustainability of decentralized finance and the Uniswap Protocol.  

In a “case of first impression,” District Judge Katherine Polk Failla determined that the Plaintiffs could not seek rescission of their token purchases under Section 29(b) of the Exchange Act because “it defies logic that a drafter of computer code underlying a particular software platform could be liable under Section 29(b) for a third-party’s misuse of that platform.” Because the “smart contracts here were themselves able to be carried out lawfully, as with the exchange of crypto commodities ETH and Bitcoin… Defendants’ underlying core and router contracts were collateral to the Scam Token activity… and constituted the sort of tangential activity that falls outside of Section 29(b).” With regard to the Plaintiffs’ allegation that the Defendants violated Section 12(a)(1) of the Securities Act for selling unregistered securities, the Court found that the Defendants were not “statutory sellers” of the tokens that the Plaintiffs purchased, which is a prerequisite to allege a violation of that statute. 

The Court explicitly dismissed the Plaintiffs’ federal claims with prejudice and declined to allow the Plaintiffs to amend their claims, and stated that the dismissal of the state law claims was without prejudice to their refiling in state court.

Jason Gottlieb, Michael Mix and Vani Upadhyaya represented defendant Uniswap Foundation, and worked alongside Skadden, Arps, Slate, Meagher & Flom LLP, Latham & Watkins LLP and Debevoise & Plimpton LLP.