CFTC Bypassed Legal Requirement in Trying to Serve Ooki DAO, Crypto Supporters Claim
The Commodity Futures Trading Commission (CFTC) is trying to “create [a] novel precedent” for itself in trying to serve a lawsuit to the entirety of a decentralized autonomous organization (DAO), rather than the DAO’s members, one of three filings pushing back against the agency’s lawsuit said.
The filings, published Monday, are responses to the CFTC’s earlier pushback against the amicus briefs filed by crypto legal consortium LeXpunK, venture capital firms Andreessen Horowitz and Paradigm, and the DeFi Education Fund.
The CFTC sued Ooki DAO in September, alleging the organization illegally offered crypto derivatives products to U.S. customers. The CFTC made similar allegations with bZeroX, a company that acted as a predecessor to the DAO.
The four amici initially argued that the CFTC’s method of serving notice on Ooki DAO’s members – which was done by posting a notice in a DAO-run forum and via a chatbot on the DAO’s website – was unlawful, and DAO members impacted by the suit should have been notified directly. Due to the unorthodox nature of the notice, the CFTC had to ask the California judge overseeing the case to approve its methods. The amici say the judge should reconsider.
The CFTC pushed back in its own filing last week, claiming that because the DAO was clearly aware of the lawsuit (its members discussed it in the DAO forum and the DAO’s official Twitter account posted about it), notice had been properly served.
But the amici now say that is not enough.
Andreessen Horowitz said in its brief Monday that the CFTC did not describe any efforts it had made to identify members of the DAO. Under California state law, which governs the case’s service, the regulator would have to try and identify individuals to serve, the filing said.
Much of the filing focuses on this argument, detailing why the venture fund believes the CFTC has failed to meet legal requirements for serving the DAO.
The arguments made by Andreeseen Horowitz’s lawyers echo those of the DeFi Education Fund, which attempt to convince the court that the CFTC did not properly serve notice, and that allowing the federal regulator to skirt existing legal requirements just because the technology involved in the case is novel could risk the Constitutional right to due process.
LeXpunK alleges that the CFTC has not even proven that the DAO is an “unincorporated association” under applicable law.
“The CFTC relies upon a razor thin metaphysical distinction between the Ooki DAO and Ooki Protocol. According to the CFTC, the Ooki Protocol is software. In contrast, (per the CFTC) the Ooki DAO is ‘a group of users of the Ooki Protocol who (a) chose not to incorporate, and (b) both held and actually voted governance tokens to participate in the business of running the Ooki Protocol pursuant to specific, publicized governance protocols.’ The CFTC claims that it ‘is not a novel proposition’ that individuals who use the same software can be deemed members of an unincorporated association by virtue of that software use. Not only is this a novel proposition, it is unprecedented. It would likely surprise Microsoft Word users to learn that editing the same document as another person is enough to form an unincorporated association,” LeXpunK said.
Paradigm did not file a response to the CFTC’s motion by the Monday deadline.
A hearing to discuss the CFTC’s motion for alternative service is currently slated for Dec. 7.