US Judge Throws Out Lawsuit Against DeFi Startup PoolTogether

A federal judge has dismissed a lawsuit against PoolTogether, a decentralized finance (DeFi) startup. 

The lawsuit against PoolTogether was filed in 2021 and alleged that the platform operated in a way that allowed users to scam consumers and evade financial regulation. 

Lawsuit Against PoolTogether Dismissed 

In the ruling dismissing the lawsuit, Judge Frederic Block stated that the federal court system was not the appropriate platform to air concerns related to PoolTogether and its operations. This means that many watchers who were anticipating how the courts would handle matters related to decentralized finance would likely have to wait longer. The lawsuit, filed in 2021 by software engineer Kent was among the first to turn to the courts to rule on how the law would apply to decentralized finance. The judge stated in the order, 

“While Kent no doubt has genuine concerns about PoolTogether—including its legality under New York law—a suit in federal court is not an appropriate way to address them.”

DeFi protocols and applications are designed to be completely anonymous and are governed by a community of token holders instead of the entity or individual that creates them. In the lawsuit, Kent alleged that PoolTogether violated New York State’s gambling laws and allowed users to evade financial regulations and scam customers. In the complaint against PoolTogether, Kent stated that the platform was essentially a lottery.

Judge Refuses To Be Drawn In 

The judge refused to dive into the legal questions raised by the lawsuit, focusing instead on where it belonged. The judge asked Kent’s lawyer if the case was better suited to a state court rather than a federal one. Furthermore, the judge’s statements during the hearing for arguments over the motion to dismiss the lawsuit suggested he would rule in favor of PoolTogether and its investors. 

PoolTogether Skeptical About Motives 

PoolTogether and its founder, Leighton Cusack, disputed the lawsuit and, in a motion filed in 2022, sought to have Kent’s claims dismissed or push him to arbitrate the matter. PoolTogether has also questioned whether Kent could bring in a lawsuit against the company in the first place. The platform and other defendants have also questioned Kent’s motives behind the lawsuit, adding that he was not harmed by putting his digital assets. The Judge seemed to agree with these statements, stating that putting funds into PoolTogether was a matter of choice and that it was done willingly by the petitioner. 

However, the judge also seemed to acknowledge the validity of the questions raised in the lawsuit, stating, 

“We’re dealing with the exotic world we live in today. In this whole new area, there are lots of questions that haven’t been answered.”

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.