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CFTC Slaps First Lawsuit on DAO Over Rules Violation

Ifeanyi Egede - Crypto News
2022-09-23 11:04

The United States Commodity Futures Trading Commission (CFTC) has moved against a decentralized autonomous organization (DAO) and holders of its tokens. In a surprising move, the agency has sued the DAO while agreeing to a settlement with another entity over a breach of regulations.


In a rare move reminiscent of the Securities and Exchange Commission (SEC), the CFTC has filed a lawsuit against Ooki DAO. The filing occurred at the U.S. District Court for the Northern District of California. 

In the official complaint, the agency alleges that Ooki DAO uses its platform to sidestep the regulations guiding its operation. Moreover, Ooki DAO was the governing protocol for bZeroX, LLC during the latter’s decentralization drive in 2021.

According to the CFTC statement, bZeroX aims to transfer control of the bZx Protocol to the bZx DAO to make the bZx DAO immune from regulatory scrutiny. The commission added that the founders are confident they have identified a loophole that will allow them to violate the laid-down rules.

As a result, the CFTC announced a $250,000 fine and settlement with bZerox and its founders, Tom Bean and Kyle Kistner. Furthermore, the two individuals developed the bZx Protocol that they intended to use to remain invisible to regulators.

Meanwhile, the latest development could broadly impact how the regulator oversees the DAO ecosystem.

The CFTC reiterated that Ooki DAO is an unregistered entity with holders in its governance token’s custody. Accordingly, the firm is liable to face prosecution in the lawsuits as it has violated existing laws on the DAO’s operations.

Moreover, the regulator highlights the decision to rebrand from bZx DAO to Ooki DAO as deceptive.

The content of the CFTC’s compliant document shows that several DAO users had lived in the United States and conducted business before it burst. Through this, the agency inferred that the company and its founders have engaged in unlawful activities without regard to the existing laws.

CFTC’s Commissioner Opposes Regulators’ Approach

In another twist of the event, a CFTC commissioner, Summer Mersinger, has expressed dissent about the agency’s approach to the issue. 

The commissioner noted that the CFTC could go after individuals who are found wanting to violate the law. She, however, posits that the CFTC has no legal jurisdiction to hold the DAO token holders accountable.

Mersinger added that the commission should have issued an enforcement order. The enforcement is appropriate and weighs on an individual’s involvement in breaking the law rather than their status as a token holder. 

Mersinger’s dissenting statement disclosed that the actions taken by the commission are not grounded in its legal purview. This implies that the agency’s action is based on a thin line between law and legal enforcement.

Furthermore, Mersinger revealed that had the founders and the firm been the main focus of the case, she could have supported the CFTC’s action.

The latest development has provided a fresh perspective on regulatory enforcement in the U.S.

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