In late 2020, PoolTogether was sued by Joseph Kent, a software engineer who, at the time, was working as the tech lead for Senator Elizabeth Warren’s presidential campaign.
The lawsuit was filed taking advantage of a New York law that allows buyers of an illegal lottery ticket to file a class-action lawsuit against the issuer of the ticket. According to Kent, PoolTogether’s MO turned into an unlicensed casino and therefore took advantage of its users. However, the judge disagreed with this view of the DeFi project.
PoolTogether is a DeFi project built on Optimism, a popular Layer-2 rollup network. The project was inspired by premium financial products available in the U.K. known as premium bonds, or colloquially as “no-loss lotteries.”
When a user chooses to deposit into PoolTogether’s fund, he earns a small chance to receive a daily prize. While this may indeed sound like plain old gambling with extra steps, users who did not win the prize get back all of their funds automatically.
According to PoolTogether’s FAQ, the prize money comes from interest earned on user deposits, which are sent by PoolTogether to larger staking pools in order to collect interest on behalf of PoolTogether users.
Fortunately for fans of the project, Judge Frederic Block agreed with the defense. It was largely funded by a series of Pooly NFTs, which were minted to help fund the case. So far, nearly $2 million have been contributed to PoolTogether’s legal fund in this manner.
Lawyers argued that Kent suffered no losses by depositing his funds in PoolTogether’s fund and accused the software engineer of depositing money for no other reason than to give him the ability to sue.
Judge Block allegedly agreed with this view. Nevertheless, he concurred that PoolTogether’s MO might not be completely in order. However, according to the judge, its legality would be a matter for a state court since, at a federal level, there was no evidence of wrongdoing.
“You got exactly what you asked for, didn’t you? Putting money into PoolTogether was a matter of choice. You did that with eyes wide open. […] However, 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.”
It’s now up to Kent to decide if he will pursue his case locally or let the matter rest.
