US Judge Dismisses Lawsuit Against DeFi Startup, PoolTogether

The decentralized finance (DeFi) community received good news yesterday after the 2-year-long lawsuit against the DeFi protocol PoolTogether finally came to an end. PoolTogether’s co-founder, Leighton Cusack, excitedly shared the update on Twitter, saying the court has dismissed the case.

US federal judge Frederic Block dismissed the lawsuit filed by Joseph Kent against the DeFi Startup in October 2022. 

Why Judge Dismissed Lawsuit Against DeFi Startup

The former head of tech for Senator Elizabeth Warren’s presidential campaign, Joseph Kent, filed a reformed class action lawsuit against PoolTogther Inc. The plaintiff sued the firm for severe damages after depositing $12 worth of stablecoins into the protocol. 

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He leveraged the New York law that allows buyers of an illegal lottery ticket to file class-action lawsuits against the ticket issuer.

Kent claimed that PoolTogether runs an illegal lottery and casino in New York and may never deliver touted value since it withholds 50% of weekly wins as reserves. He sought compensation of double the amount he spent on PoolTogther’s lottery tickets and twice the amount of attorney fees and legal costs. However, Judge Block disagreed with Kent’s argument. 

Notably, the defense team argued that Kent suffered no loss by depositing his funds on PoolTogether’s platform. The lawyers said the software engineer deposited the money to qualify him to sue the protocol.

Fortunately for the defense team, the judge ruled in their favor. Although Judge Block doubts PoolTogether’s legality, he suggested the matter should appear before a state court. According to the judge, the firm’s legality can only be decided at a state court since there is no evidence of wrongdoing at the federal level.

Judge Block said 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. Therefore, the court holds that Kent lacks standing to sue and accordingly grants the defendant’s motion to dismiss on that ground. The alternative motions to compel arbitration are denied as moot.

Following the motion dismissal, the judge said Kent could pursue his claims in state court. The plaintiff can also bring any ancillary issue raised in the motion dismissal before the New York Court of Appeals.

Community Support Paid Off

It is worth noting that the DeFi community supported PoolTogether’s legal bills with $1.4 million in funds raised from Pooly NFT sales. Pooly is a collection of purple animated avatars available in three rarity levels and pricing, such as 10,000 NFTs for 0.1 ETH each, 1m000 NFTs for 1 ETH each, and 10 NFTs for 75 ETH each. 

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Some notable players in the DeFi space, including Chris Dixon, a managing partner at a16z, supported PoolTogether by acquiring one of the Pooly Judge NFTs worth 75 ETH.

Featured image from Pixabay and chart from TradingView.com