Second Crypto Group Objects to CFTC's Use of Chatbot to Serve Legal Papers

The DeFi Education Fund wants the CFTC to identify and serve Ooki DAO's actual members, rather than just serve the DAO at large.

AccessTimeIconOct 5, 2022 at 4:20 p.m. UTC
Updated Oct 5, 2022 at 7:45 p.m. UTC

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

The DeFi Education Fund (DEF), a Washington, D.C.-based lobbying group focused on decentralized finance (DeFi) issues, has joined a group of crypto lawyers in arguing that the Commodity Futures Trading Commission (CFTC) should not be allowed to serve the defendants of a lawsuit merely by posting on a website.

The DEF filed to join the case as a friend of the court on Monday, arguing that the way the CFTC is approaching the question of service "could chill novel and innovative forms of software development." The filing comes just after the LeXpunK Army, a group of lawyers and developers in crypto, filed a similar motion to join the case.

The CFTC asked Judge William Orrick of the District Court for the Northern District of California to rule that a forum post and a website help chatbot submission were sufficient to properly serve notice to Ooki DAO and its members that they were the named defendants in an ongoing enforcement action. The judge ruled in the CFTC's favor on Monday, the same day LeXpunK filed its motion to join the case.

At issue is the definition of just who is a member in a DAO.

The CFTC sued Ooki DAO last month on allegations that it was offering margined and leveraged trading products without registering as a futures commission merchant or having a know-your-customer process. The regulator also settled with the DAO's predecessor, bZeroX, and the company's founders, Kyle Kistner and Tom Bean. BZeroX, Bean and Kistner were accused of the same conduct that Ooki DAO allegedly engages in, though the CFTC settled Bean and Kistner's DAO-related charges alongside the bZeroX charges.

The DEF argued in its filing that DAOs are not the same as centralized businesses and should not be treated the same.

"In many cases, DAOs lack any central organization or management, and many DAO token holders often lack coordination or common objectives. As a result, DAOs will often not be 'associations' of any kind, and therefore will not be proper defendants in an enforcement action brought under the Commodity Exchange Act ('CEA'), which requires that a defendant be a 'person' (defined to include 'associations')," the DEF's filing said.

The CFTC should have to prove that Ooki DAO is "an association" before it can serve it.

Beyond that, the CFTC's current effort to serve the DAO is inadequate, the DEF argued.

In a statement shared with CoinDesk, a spokesperson said, "If the CFTC is allowed to proceed in, what we view as, a misguided method of service that deprives the Ooki DAO token holders their right to due process, then it would not just result in a serious misjustice, but also will chill novel innovation and innovative forms of governance and software development in the United States."

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Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

CoinDesk - Unknown

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.