People today often accuse the US Securities and Exchange Commission (SEC) of a destructive style of regulation, but the SEC is not the only policy maker in the US. The Commodity Futures Trading Commission (CFTC) is also still there. According to the CFTC, Decentralized Autonomous Organizations (DAOs) cannot escape the law either, with one DAO now having to pay a hefty fine because it was in fact an unregistered trading platform.
CFTC wins lawsuit against Ooki DAO
This is what the American policymaker writes in a press release. The DAO in question goes by the name of Ooki DAO, which was in fact a Futures Commission Merchant (FCM) according to the CFTC. That’s a fancy term for a trading platform that lets you trade futures contracts. Ooki DAO allowed investors to trade cryptocurrencies with leverage.
The CFTC viewed the platform as a “person,” meaning the DAO must watch for violations of the law. As a result, the CFTC saw its chance to sue the organization. The lawsuit started back in September, after which the DAO’s backers and the wider crypto industry loudly protested. The CFTC would not have handled it fairly by treating the DAO as a person.
But the judge still agrees with the CFTC. Ooki DAO must take down its website, remove all information about the platform from the internet and pay a fine of USD 643,542.
Crypto community protests
Meanwhile, the crypto community is talking about the result. Gabriel Shapiro, attorney at Delphi Labs, emphasizes that it is a default judgment. This means that the CFTC has not even had to substantiate its own arguments. But DAOs haven’t even been around for very long, which means there have been few situations where the judge will have based the conclusion.
I’m seeing some misleading takes on yesterday’s OokiDAO decision. Here are some notes/clarifications from my understanding:
1. this is a *default* judgment–OokiDAO didn’t defend itself, so the CFTC won without needing to prove its theories
limited precedential significance
— _gabrielShapir0 (@lex_node) June 10, 2023
It is possible that Ooki DAO will appeal this, but that does not seem to be the case for the time being. The organization has remained very quiet after the crushing loss. That writes Brian L. Frye, professor of law at the University of Kentucky, on Twitter.
“A rule of thumb; if a government agency sues your company, it’s a good idea to file an answer. (It is) interesting to see several bystanders (of Ooki DAO), but the defender remains silent,” said Frye.
Rule of thumb: When a federal agency sues your business, it’s a good idea to file a response. Interesting to see multiple amicus briefs, but nothing from the defendant. https://t.co/U0su4XhkHq
— Brian L. Frye (@brianlfrye) June 9, 2023