A class-action lawsuit alleging the Maker Foundation and others associated with lending platform MakerDAO knowingly misrepresented the risks of investment has been stayed and the case sent to arbitration.

  • In an order last Friday, Judge Maxine Chesney granted a motion by the Maker Foundation to refer the case to the American Arbitration Association as specified in a clause in the foundation's terms of service.
  • In the lawsuit filed in April, plaintiff Peter Johnson claimed the Maker Foundation, the Maker Ecosystem Growth Foundation and the Dai Foundation knowingly deceived investors, describing it as being a more secure investment than other assets because its DAI stablecoin is over-collateralized.
  • The plaintiff claimed he and other investors each endured six-figure losses when the price of DAI's primary collateral, ether (ETH), dropped sharply in the March 12 "Black Thursday" crash, liquidating thousands of collateralized debt positions (CDPs) held by investors.
  • That was despite being assured that the over-collateralization policy would safeguard against large drops in the value of ether and result in a maximum 13% loss, Johnson claimed.
  • According to the project’s white paper, the 13% figure is not a hard cap but may vary dependent on internal conditions in the Maker ecosystem, though the plaintiff claimed that various Maker products state the figure is the maximum strike.
  • Johnson claimed to have lost more than $200,000 worth of ether during the crash.
  • By bringing the matter to court, Maker has argued that Johnson acted in defiance of the arbitration clause he agreed to when signing the terms of service in 2018.
  • Johnson attempted to counter in August, claiming Maker’s 2018 agreement was based on an outdated and "now abandoned product,” but the court rejected that claim on Friday.
  • Legal proceedings have now been halted until the arbitration proceedings have been settled, vacating a previously scheduled court hearing on Oct. 2.
  • The plaintiff had been expecting to have up to 1,000 members join the lawsuit seeking damages equivalent to the total claimed losses of around $8.325 million, plus punitive damages of $20 million.
  • It's not clear how many investors had joined the class action.

See also: MakerDAO Users Hosed by March Flash Crash Won’t Get MKR Payouts, Say MKR Whales

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