DAO Gains Venture Capital Ally in CFTC Suit

“The community of people making decisions on the DAO is fluid, ever-changing and different for each proposal on which they vote,” Paradigm said
It argues the CFTC should identify and serve its lawsuit against individual DAO members

Crypto venture capital firm Paradigm has filed a motion to join other parties in arguing that the Commodity Futures Trading Commission (CFTC) improperly served members of Ooki DAO.

The CFTC controversially sued Ooki DAO in September, alleging that it facilitated unregistered margined and leveraged crypto trading products for US residents.

In the Monday filing, Paradigm said the Commission should seek to hold accountable only those who directly contributed to Ooki’s registration requirements under the Commodity Exchange Act. Paradigm argues DAO members should have been served a summons directly, rather than through a general website chat bot.

“A key characteristic of DAOs is that unrelated, anonymous people come together to decide whether to adopt ad hoc proposals about how to run the underlying protocol,” the firm said in the motion requesting to file an amicus brief. An amicus refers to a party intending to influence the court’s decision, as it holds a substantial interest in the matter.

“A person might choose to participate once or many times, but the community of people making decisions on the DAO is fluid, ever-changing and different for each proposal on which they vote,” Paradigm added.

The regulator had settled charges against the DAO and its founders Tom Bean and Kyle Kistner, but it was unable to identify key figures attached to the DAO — so it served its court summons through Ooki’s website chat bot.

The news was met with some disbelief over whether the CFTC was serious about bringing forward a complaint against every individual member of a DAO.

Other groups support Ooki DAO against CFTC action

Last week, US District Judge William Orrick ruled that two crypto advocate groups — who asked to join the case — could argue the CFTC shouldn’t be able to serve the DAO through a website help bot. LeXpunK Army and the DeFi Education Fund both have filed for permission to add amicus briefs similar to Paradigm’s.

Paradigm has joined them, saying identifying all voting token holders as “members” of the same associations “threatens to seriously distort the law.”

While we are not a party to the case, we thought it was necessary to speak up against the CFTC’s attempt to expand liability to unsuspecting technology users and impair the ability of DAOs to operate in the US.

— Rodrigo (@RSSH273) October 17, 2022

Since being served, the DAO appears to have geo-fenced users with IP addresses located in the US. It was set a deadline to respond to the allegations by Oct. 13, but that date has passed with no filing from the DAO.

A hearing has been set for Nov. 30 where the various parties will be allowed to present their views.

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