YouTuber Logan Paul has gotten a boost in his ongoing battle in the courts over the failed CryptoZoo NFT project after a Texas magistrate judge recommended that a federal class-action suit against him be dismissed in large part.
On Thursday 7th August, Magistrate Judge Ronald Griffin issued his recommendation to an Austin federal district court to dismiss the suit, which is brought by a group of CryptoZoo buyers.
That is because the plaintiffs had not convincingly shown Paul was liable for their alleged financial losses.
While the recommendation does not dismiss the case outright, it suggests that unless the plaintiffs amend their filing for more facts, the case may be rejected.
Commodity Pool Fraud Claim Permanently Rejected
Judge Griffin has ruled, in a 75-page document, that a central allegation, commodity pool fraud, should be permanently dismissed entirely. He found that the reasoning of the plaintiffs was legally insufficient.
The group argued that CryptoZoo NFTs were essentially option contracts because buyers were first buying “egg” NFTs that would later hatch into animal images, which could then be bred for hybrids.
Judge Griffin rejected the reasoning at all, stating that “the mental gymnastics it would take to reach this conclusion are simply dizzying.”
He also remarked that the plaintiffs were unable to explain how these NFTs could be understood as commodity contracts or agreements for future delivery under existing definitions.
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Plaintiffs Fail to Tie Logan Paul to Alleged Wrongdoing
In addition to winning the fraud claim, the judge found flaws in all the other 26 claims the plaintiffs made against Logan Paul (including fraud, unjust enrichment, negligence, and conspiracy).
He stated that the complaint often provided little more than a vague assertion and failed to directly connect Paul to the actions that caused financial harm.
Griffin stated that in the last complaints, the plaintiffs treat Paul as being ‘clumped-together’ with other defendants, or did not provide evidence that proved that Paul personally profited from CryptoZoo’s collapse.
Notably, UnoCrypto reported in July that a federal judge denied Logan Paul’s request for default judgment against the CryptoZoo co-founders, allowing the NFT fraud case to proceed.
Refund Program Undermines Lawsuit Claims
The court also stated that Paul previously created a refund program for purchasers of CryptoZoo that curtails specific claims for damages.
In January 2024, Paul purportedly provided $2.3 million in refunds to purchasers (at the original purchase price of 0.1 Ether for each NFT).
The refunds were made, however, on the condition that participants had to waive their rights to sue concerning the project.
Although several investors had pursued legal actions unsuccessfully, some have interpreted this program as perhaps one way to at least mitigate damages and distance themselves from accusations of intentional fraud.
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What Comes Next in the Case?
Even though Griffin’s recommendation is not yet finalized, it is very influential, and the judge presiding over the case is likely to follow his recommendation.
To sustain the majority of their claims, the plaintiffs need to amend their filings to have more direct connections between Paul and the conduct identified in their filings.
The only claim that is gone forever is the commodity pool fraud, and it will no longer be revived.
With Paul continuing to assert that CryptoZoo’s failure was caused by his co-founders and not himself, the plaintiffs are facing an uphill battle in keeping the lawsuit alive.
The case illustrates the legal intricacies at play in the ever-evolving world of NFT projects and the difficulty for investors to find accountability from bad actors in the fast-paced world of crypto.