The Commodity Futures Trading Commission (CFTC) used unorthodox methods to serve a lawsuit against the pseudonymous members of a decentralized autonomous organization (DAO), according to court documents filed on Tuesday.
Members of Ooki DAO – which operates a protocol that offers illegal, off-exchange tokenized margin trading and lending services – were notified of the lawsuit when a CFTC paralegal posted the complaint and other documents to an online discussion forum meant for DAO members to discuss governance issues, a CFTC attorney claimed in a court filing. The documents were simultaneously submitted through a help chat box on the DAO’s website.
The CFTC wants the District Court of the Northern District of California to approve the use of the chat bot and forum posts as proper service of the lawsuit to the defendants, which includes every voting member of the DAO.
The lawsuit, announced last week, is the first to be brought against members of a DAO by the CFTC, and could have wide-ranging consequences for DAO regulation in the future. Charges were also filed and settled against a blockchain protocol, bZeroX – which the CFTC claims operated the same service before handing over the reins to Ooki DAO – and two of its founders, who settled for a $250,000 monetary penalty.
Now the pseudonymous members of Ooki DAO face their own lawsuit. The CFTC is seeking disgorgement, trading and registration bans, injunctions against further violations of the Commodities Exchange Act (CEA) and civil monetary penalties.
However, the CFTC’s inability to find a non-doxxed member of the DAO to serve the lawsuit on indicates that reaching a resolution will be more complex than it was in the case of bZeroX’s founders. A member of the DAO has approximately 21 days to respond to the lawsuit to avoid a default judgment on the CFTC’s behalf.
The CFTC’s motion for alternative service asks a court in the Northern District of California to authorize its unorthodox methods for delivering the complaint and summons to Ooki DAO, because “by choosing to organize itself as a DAO, the Ooki DAO has structured its business in a way that has erected significant obstacles to traditional service of process.”
The motion argues that, even though no one from the DAO has responded to the CFTC’s requests to get in touch, discussions of the lawsuit in the Ooki DAO Telegram chat and “at least 112 views of the CFTC’s post in the Online Forum regarding the action” are enough to indicate that the DAO was properly served.
A hearing is currently scheduled for Nov. 9.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.