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Volume XII, Number 176

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Uniswap and VC Backers Sued For Selling Unregistered Securities

A recent class- action lawsuit alleges that the “Uniswap Protocol” exchange is one of the largest crypto-asset exchanges in the world, which permits the  unlawful promotion, offer, and sale of crypto tokens as unregistered securities. According to the complaint, Uniswap has no barriers to entry for users looking to trade or swap crypto tokens on the exchange.  It requires no verification of an individual’s identity and conducts no “know-your-customer” (KYC) process, leading to rampant fraud. The complaint further alleges that Uniswap has enriched itself and the other defendants (including its VC backers) by collecting fees for issuers on every transaction executed on the exchange that is not disclosed in a transparent manner, in violation of securities laws. Other allegations are that Uniswap offered and sold unregistered securities throughout the United States on its exchange without registering as a national securities exchange or as a broker-dealer and without there being any registration statements in effect for the tokens it was selling, all in violation of applicable law.

The complaint further alleges that had the tokens been registered as required, the defendants would have received necessary and meaningful disclosures that would have enabled them to reliably assess the representations being made by the issuers and the riskiness of their investments, but that without these disclosures, they were left to fend for themselves and subject to rampant fraud.

With respect to the VC backers of Uniswap, the complaint alleges that they aided and abetted Uniswap’s: i) failure to register as an exchange or broker-dealer; ii) offer and sale of securities on an unregistered exchange and operation as an unregistered broker-dealer; and iii) solicitation of securities.

As we have noted in previous posts, the SEC has flagged decentralized exchanges as a topic on which they are focused. For example, as reported here, the SEC recently issued proposed amendments to the Securities Exchange Act that would significantly broaden the definition of “exchange” for purposes of regulation under the Exchange Act to address a “regulatory gap”.

This undoubtedly, will be a closely watched case. Check back for updates.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 108
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About this Author

James Mattinson Blockchain Technology and Digital Currency Lawyer Sheppard Mullin Washington DC
Partner

Jim Gatto is a partner in the Intellectual Property Practice Group in the firm's Washington, D.C. office. He is also Co-Team Leader of the firm's Digital Media Industry and Social Media and Games Industry Teams, Blockchain Technology and Digital Currency team, and Team Leader of the firm's Open Source Team. 

Areas of Practice

Mr. Gatto leverages his unique combination of nearly 30 years of IP experience, business insights and attention to technology trends to help companies develop IP and other legal...

202.747.1945
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