Morrison Cohen Attains Dismissal in Prominent Digital Assets Case Involving PoolTogether Protocol

On June 7, 2023, the U.S. District Court for the Eastern District of New York granted the motions to dismiss by 13 defendants, including Morrison Cohen clients Compound Labs, Inc. and Dragonfly Digital Management, LLC, in a putative class action lawsuit by Plaintiff Joseph Kent.  Kent alleged a violation of New York General Obligations Law § 5-423 – a statute allowing users to recover money paid to purchase a ticket in an unlicensed lottery – with respect to the PoolTogether Protocol,  a decentralized finance protocol that encourages users to save their cryptocurrency assets by providing distributions of cryptocurrency interest to randomly selected depositors.

Judge Frederic Block held that Kent’s action should be dismissed for lack of Article III standing because Kent did not suffer any concrete harm at the hands of the defendants. The PoolTogether Protocol operates a “no-loss lottery,” where the depositor can withdraw their assets at any time. Judge Block thus explained, "Kent has suffered no concrete harm at the hands of the defendants. By his own admission, [Kent] can withdraw his contributions at any time and the fees that those transactions would incur are not imposed by the defendants. He has lost interest on those contributions but … that is a problem of his own making.”

Jason Gottlieb, Michael Mix and Alexandra Wang represented defendants Compound Labs, Inc. and Dragonfly Digital Management, LLC.