CFTC files first suit against the DAO and its members

CFTC filed suit in court against Ooki DAO, created in 2021 to govern the DeFi platform bZx, and also its token holders.

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The agency characterised Ooki DAO as a \”non-corporate association of Ooki token holders\”.

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The agency charged the defendants with unlawful offering of exchange-traded products using borrowed funds and violating the Bank Secrecy Act for the absence of Know Your Customer compliance.

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The CFTC’s interest in the DAO and its participants arose as it settled claims against bZeroX and its founders—Kyle Kistner and Tom Bean—who developed and maintained the bZx protocol until a decision was made to distribute control.

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The developers paid a penalty of $250,000, but did not admit or dispute the Commission’s findings.

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\”DAOs are not shielded from enforcement and cannot flout the law with impunity. … Ooki DAO has not registered with the Commission in any capacity,\” the statement read.

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The officials argued that bZeroX’s aim in transferring control of bZx (now Ooki) to the bZx DAO (Ooki DAO) was to make the latter, by virtue of its decentralised nature, immune from enforcement. In other words, the founders apparently believed they had found a way to flout the Bank Secrecy Act and other regulations with impunity, they added.

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The complaint alleges that several DAO participants resided in the United States at the time of voting with tokens and used the protocol.

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CFTC Commissioner Summer Mersinger expressed disagreement with her colleagues. She cited the agency’s lack of authority to hold token holders accountable.

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bZx rose to prominence as a result of four hacks in 2020-2021, the total losses from which amounted to nearly $64 million.

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On September 16, 2022 the White House presented a concept for regulating the cryptocurrency industry. It envisages a range of initiatives, including tougher enforcement against providers of services related to digital assets.

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Also in September, SEC charged a crypto investor and YouTube blogger Ian Balina with involvement in an unregistered ICO Sparkster. The complaint states that transactions to the blogger’s Ethereum wallet were processed by nodes located in the United States and, accordingly, were conducted under the regulator’s jurisdiction.

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In August, the Ethereum mixer Tornado Cash was sanctioned by U.S. authorities. The restrictive measures affected not only the wallets linked to it but also the service’s smart contracts directly.

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Coinbase CEO Brian Armstrong said that a hard line on crypto regulation is constraining the industry’s development, forcing projects and developers to leave the United States.

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