The Commodity Futures Trading Commission (CFTC) filed a lawsuit against a decentralized autonomous organization, including governance token holders.
The CFTC disclosed a $250,000 fine and settlement with bZeroX, LLC and its creators, Kyle Kistner and Tom Bean, on Thursday evening. The two managed the creation of the bZx protocol, a decentralized lending and other activities protocol. The bZx protocol made news in 2020 due to code vulnerabilities that led to the loss of hundreds of thousands of dollars worth of cryptocurrency.
But today’s move by the CFTC, including the filing of a lawsuit against Ooki DAO, which in 2021 was used to control the protocol as part of a decentralization initiative, might have a greater effect.
This case was brought to the United States District Court for the Northern District of California. In its lawsuit, the CFTC accused Ooki DAO of evading regulatory monitoring by using its structure.
“bZeroX’s primary goal in transferring control of the bZx Protocol (now the Ooki Protocol) to the bZx DAO (now the Ooki DAO) was to seek to make the bZx DAO enforcement-proof by virtue of its decentralized character. Simply put, the creators of bZx felt they had discovered a means to violate the Act and Regulations, along with other laws, without penalty.”
“However, the bZx founders were in error,” the agency said. “DAOs are not immune to law enforcement and cannot break the law without consequence.”
In the lawsuit, the CFTC characterizes Ooki DAO as “an unincorporated entity composed of holders of Ooki Tokens.”
“The Ooki DAO has never been registered in any form with the commission,” the lawsuit said. The agency then describes the many governance choices taken by token holders, such as the rebranding from bZx DAO to Ooki DAO.
During the DAO Relevant Period, many Ooki DAO members lived in the United States and performed Ooki DAO business (such as voting Ooki Tokens to control the Ooki DAO and operating the Ooki Protocol) from inside the United States, according to the lawsuit.
Kistner, Bean, and bZeroX, according to a separate settlement order released by the CFTC, “engaged in illegal operations” that required registration under existing commodities rules. In addition, the panel accused the founders of violating anti-money laundering regulations.
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