‘Scam Tokens’: Class Action Alleges Uniswap Labs Has Done Nothing to Stop ‘Rampant Fraud’ On Crypto Exchange

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Uniswap Labs is among the defendants in a proposed class action that alleges the cryptocurrency exchange is besieged by “rampant fraud” due to a lack of identity verification and the platform’s fee structure. 

The 68-page lawsuit against Universal Navigation Inc., parent Paradigm Operations LP, and equity owners Andreessen Horowitz and Union Square Ventures alleges the companies are “well aware” of the fraud happening on the Ethereum blockchain-based exchange yet have done nothing to stop the activity. In fact, the case claims Uniswap has even “encouraged” fraud on the platform by ensuring that token issuers are guaranteed fees on every trade. 

The filing alleges many Uniswap users are unaware that the platform collects on every transaction fees that generate “vast profits” for the defendants, who the case says have issued tokens on the exchange themselves while serving as the architects of the fee structure at issue. Per the lawsuit, Uniswap, who reportedly averages around $1.5 billion in trading volume each day, allows for the issuance of “thousands of scam tokens,” many of which are linked to “rug pulls,” “pump-and-dump” and Ponzi schemes, and other fraudulent conduct.  

“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,” the case, filed in Manhattan federal court on April 4, alleges. 

According to the complaint, the tokens traded on the Uniswap exchange are, in truth, unregistered securities, and the defendants, the lawsuit claims, have failed to disclose their control over the tokens issued on the exchange—including EthereumMax, Bezoge Earth, Matrix Samurai, AlphaWolf Finance, Rocket Bunny and BoomBaby.io—in a transparent manner. 

“This is precisely the type of conduct that the securities laws, which Uniswap has continually flouted, are designed to prevent,” the suit states. 

According to the lawsuit, the tokens traded on Uniswap are “investment contracts” and therefore securities under federal law, and their issuers are thus required to file registration statements for each token. Had the digital assets been properly registered, proposed class members would have received meaningful disclosures that would have enabled them to reliably assess the token issuers’ representations and the riskiness of their investments, the suit argues. 

“Without these disclosures, they were left to fend for themselves,” the case relays. 

As the lawsuit tells it, the issuers of the tokens highlighted on this page were welcomed with open arms by Uniswap, who stood and currently stands to collect millions in transaction fees. Uniswap nevertheless failed to register as an exchange or broker-dealer, the case alleges. 

“Defendants have profited handsomely from this unlawful activity, as have the Issuers to whom Uniswap paid hidden and exorbitant fees,” the complaint states. “Meanwhile, unsuspecting users on the other side of these fraudulent transactions were left holding the bag.” 

The lawsuit looks to represent all persons who bought any of the tokens listed on this page on the Uniswap exchange between April 5, 2021 and the present and were harmed thereby. 

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