Texas Magistrate Recommends Dismissing Logan Paul NFT Lawsuit Over Lack of Direct Involvement Evidence

A Texas magistrate judge has recommended that a proposed class-action lawsuit against Logan Paul related to the failed NFT project CryptoZoo be dismissed, ruling that the plaintiffs have not sufficiently established his direct involvement in the project’s collapse [1]. The lawsuit, filed in February 2023 by investors who purchased CryptoZoo NFTs, accused Paul of participating in a fraudulent scheme that promised digital assets with unrealized value [1]. The plaintiffs argued that the NFTs functioned like option contracts due to the way they "hatched" and could be bred to create new digital animals, but the judge criticized the logic as convoluted and unsupported by caselaw [1].

Magistrate Judge Ronald Griffin, in his 75-page recommendation, stated that while the plaintiffs could amend most of the 27 claims against Paul, one claim—related to commodity pool fraud—should be permanently dismissed [1]. The judge noted that the plaintiffs failed to demonstrate that Paul personally benefited from the project or that he was directly involved in its management or operations [1]. In some instances, the lawsuit provided only vague allegations tied to “defendants” without clear attribution to Paul specifically [1].

The lawsuit encompasses a range of claims, including fraud, unjust enrichment, and violations of consumer protection laws across multiple states [1]. However, the judge found the arguments disjointed and lacking in factual clarity, describing some parts of the complaint as “fragments of facts accompanied by vague attributions” [1]. The plaintiffs now have an opportunity to revise their claims, but the burden remains high to establish Paul’s direct legal responsibility.

Paul, who co-founded the project with Eduardo Ibanez and Jake Greenbaum, had previously offered refunds to investors in the form of 0.1 Ether, the original price of the NFTs [1]. He has also alleged that Ibanez and Greenbaum defrauded him, a claim the judge previously dismissed as unsubstantiated [1]. The case highlights the broader legal challenges in crypto litigation, particularly in determining liability for influencers and investors who may not have direct operational control over a project [1].

The ruling reflects a growing judicial trend of requiring clear evidence of personal misconduct in digital asset cases [1]. While the plaintiffs presented a narrative of loss, the court emphasized that without direct ties to fraudulent behavior, such claims may not be enough to establish legal culpability [1]. This could set a precedent for future cases involving influencers in the crypto space, where liability will be scrutinized more closely in terms of direct involvement rather than promotional activity [1].

The case now awaits final approval from the district court, though the magistrate’s recommendation is typically influential [1]. The outcome may provide some legal clarity for individuals operating in the crypto space, particularly those who endorse or invest in projects without direct management roles [1].

Source: [1] Class Action : Law360 : Legal News & Analysis (https://www.law360.com/classaction)