U.S. Judge Dismisses Lawsuit Against DeFi Startup PoolTogether

May 04, 2023

A federal judge has dismissed a lawsuit against decentralized finance (DeFi) startup PoolTogether, ruling the federal court system was not an appropriate arena to air out concerns against the platform, according to a Wednesday ruling.

"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," Judge Frederic Block said in the order.

The lawsuit, filed by former congressional staffer Joe Kent in the U.S. District Court for the Eastern District of New York in October 2021, alleged the DeFi platform violated New York state's gambling laws by "allowing people to evade financial regulations and scam consumers," according to the original complaint. Kent, who previously worked for crypto skeptic Sen Elizabeth Warren (D-Mass), filed the suit as an apparent test case as legislators explored avenues to pursue legal actions against DeFi actors.

In response to the lawsuit, PoolTogether released an NFT collection called "Pooly," to raise funds to fight the case. The platform raised roughly $135,000 worth of cryptocurrencies within just two hours of the collection's drop.

While the case was dismissed, that doesn't mean the DeFi space is immune to litigation. Last month, investors sued DeFi protocol Bancor for allegedly deceiving investors about its impermanent loss protection mechanism (ILP) and operating as an unregistered security. The DeFi space also faces increasing scrutiny from regulators amid U.S. regulators’ broader crackdown on the crypto industry. In March, the SEC subpoenaed DeFi protocol SushiSwap and its "Head Chef" Jared Grey.