What did the US CFTC win the first case against the global DAO?

On June 9, 2023, the U.S. Commodity Futures Trading Commission (hereinafter referred to as "CFTC") announced that it had won a judgment in its lawsuit against the decentralized autonomous organization Ooki DAO, and the court basically supported all CFTC's claims. If Ooki DAO does not appeal, its members may face the consequences of civil liability after the judgment takes effect and be liable for the fine of $643,542 in the judgment. As for DAO itself, it is about to face the fate of being permanently shut down and deleting related content.

Sister Sa's team believes that the most important value of ** in the quick and controversial case of CFTC Vs. Ooki DAO is to create a precedent for DAO as a "qualified defendant" under US law, which shows that California The court essentially treated DAO as a "legal entity". **Of course, this treatment does not mean that DAO has become a legal "legal entity", but it does not affect its assumption of corresponding criminal, administrative and civil responsibilities. Of course, the specific way of assuming responsibility may not necessarily be arranged with reference to the way existing civil and commercial entities assume legal responsibilities. After all, DAO’s organizational form and operating model are far from traditional civil and commercial entities.

Today, Sister Sa’s team will give you a detailed talk about the first DAO case in the United States.

1. Introduction to the first US DAO case

Although CFTC Vs. Ooki DAO has earned a lot of attention with the gimmick of the first DAO case in the United States,** it is actually not an isolated lawsuit, but a series of "skin-changing" incidents and the DAO's founding members. It is caused by measures that are sufficient to avoid the risk of "driving without a license". **Therefore, Sister Sa’s team reminds everyone that Web3 practitioners should pay more attention to this case: DAO is a new organizational form, not a tool to avoid legal risks.

The predecessor of Ooki DAO is a DeFi protocol called bZx. The main purpose of this DeFi is to provide virtual asset pledges on the chain to realize leveraged transactions. The final profit is determined by the price difference between the two digital assets from position establishment to liquidation. Since bZx is a DeFi protocol, there are no third-party intermediaries to host user assets.

bZx was originally developed and maintained by bZeroX LLC and its founders Tom Bean and Kyle Kistner in 2019. Due to its fact that it is a more centralized operating model and there have been certain problems in its operation, it has It has caught the attention of CFTC very early. Subsequently, in order to prevent regulatory agencies from suing bZx and isolate personal risks, the two founders decided to establish bZx DAO in August 2021. By transferring the overall control of bZx DeFi from bZeroX LLC to bZx DAO, the "skin change" was realized. " and Transformation. Finally, bZx DAO officially changed its name to Ooki DAO in November 2021.

However, according to the investigation report released by the CFTC, the main business, business model and business scope of Ooki DAO not only have not changed from the bZx period, but the two founders even publicly declared in the community that "DAO can effectively prevent regulators from law enforcement."

As the old saying goes, if you don't die, you won't die, and you can make a fortune if you keep silent. The actual controller of Ooki DAO is so high-profile and the result of deliberate resistance to supervision, which eventually led to the situation where it is today. On September 22, 2022, the Commodity Futures Trading Commission issued an order today, simultaneously charging bZeroX LLC and Tom Bean and Kyle Kistner, **CFTC believes that the organization: (1) illegally provides digital asset commodity transactions; (2) ) Engage in activities that only registered futures commission merchants (FCM) can carry out; (3) Failure to perform KYC and other compliance measures required by the Bank Secrecy Act. **At the same time, the CFTC filed a federal civil enforcement lawsuit in the U.S. District Court for the Northern District of California, accusing Ooki DAO of also violating the above laws. The CFTC petition includes civil compensation, fines, and various injunctions related to the subsequent operations of Ooki DAO.

**Second, what is the significance of the first DAO case to Web3 practitioners? **

1. Whether DAO is legal or not, it does not affect its becoming a qualified defendant

For a long time, some DAO supporters in the United States have believed that this new organizational form enjoys a special "legal immunity" in judicial practice. This is because under the American case law system, if there are no precedents and Clear legislation is only based on unfounded legal theories or vague consumer protection purposes. The court, as a neutral jurisdiction exercising judicial authority, cannot arbitrarily decide who and how to be responsible for illegal acts.

But, then again, on the one hand, although the relevant claim of this kind of "legal immunity" has some truth, it is not a "right" in the legal sense, and neither right can certainly not request legal protection; On the one hand, subjects such as Ooki DAO that use "legal immunity" as a way to avoid compliance supervision widely exist in reality, which leads to serious consequences once the administrative regulatory agencies and judicial agencies turn a blind eye to this flagrant illegal behavior. The "broken window effect" has seriously damaged the general public order of the society.

Therefore, the Sajie team believes that it is necessary and practical to carry out penetrating and substantive supervision, law enforcement and justice on specific DAO organizations from the perspective of legal principles and social value theory.

**In the first case of DAO to determine whether the DAO organization is a qualified subject, the judge chose to regard DAO as a kind of "Unincorporated Association" (hereinafter referred to as "UA organization") organization. **The so-called UA organizations under the US law can also be called "unincorporated groups", "unregistered associations", "unregistered associations", etc. In fact, it is a kind of association that does not need to be registered as a legal person and does not have the qualifications of a legal person or association. This type of organization generally has a representative or manager, but has not obtained the qualification of a legal person, and does not necessarily have independent property, business organization and articles of association. From a judicial point of view, no matter whether the UA organization is legally registered or established on its own, and whether the reorganization is a legal organization or an illegal organization, it will not affect the judicial activities of the judiciary, nor will it affect its legal responsibility.

In China, UA organizations can be compared to: (1) family-run individual industrial and commercial households and rural contractors, (2) individual partnerships, cooperative economic organizations without legal person qualifications, and partnership-type associations; Foreign enterprises and organizations that have obtained Chinese legal person status. Accordingly, the judge in Northern California ruled that the DAO should be regarded as a legal UA organization and confirmed that it was a qualified defendant.

2.DAO is not a risk "firewall"

Past experience guide for the future. Sister Sa's team has always emphasized that whether it is China, the United States, Hong Kong, Singapore and other countries, as long as it is an economically active jurisdiction, the relevant regulatory agencies in the field of financial supervision will inevitably adopt strong regulatory measures to conduct penetrating supervision and substantive supervision. Supervision. Not long ago, the CFTC and SEC’s large-scale lawsuits against virtual asset service providers (including the first DAO case) have proved that superficial compliance or false compliance is meaningless.

bZeroX LLC and its founders, Tom Bean and Kyle Kistner, were naive in trying to use the DAO as a firewall against risk. Although "criminal law and punishment" are the basic principles of judicial adjudication around the world, the effectiveness of these principles is limited to the judicial practice of criminal cases. In countries with case law like the United States, civil and commercial litigation cases and administrative litigation cases with unclear or no legal provisions only test the judge's trial skills, prolong the litigation process and increase judicial costs. In other words, the absence of clear legal provisions does not mean the generation of "legal immunity".

Third, write at the end

According to the family, Sister Sa's team believes that the greatest significance and value of the first DAO case to the entire industry is only that "DAO is a legally qualified defendant". It is true that in this case, the CFTC is suspected of expanding its regulatory rights through "selective crimes", but as to whether the subsequent CFTC and the SEC can use this as a breakthrough to supervise and enforce laws on projects involving DAO, DeFi and other chains. An unknown, this is essentially a matter of regulatory conflict and balancing social interests.

At the same time, do the members involved in the governance of the DAO need to bear the responsibility for civil infringement or other disputes caused by the DAO? And what kind of responsibility? How are the rules for assigning responsibilities determined? Both need to be determined through further judicial practice. It is not the UA organization that determines the "qualified defendant" and then mechanically follow the relevant precedents of the UA organization in terms of liability. space to explore.

Finally, Sister Sa’s team reminded that the first case of the DAO may not be a final decision, and the U.S. federal court implements a three-level and second-instance final trial system for civil cases. In general civil cases, the Federal District Court serves as the first-instance court. If the parties are not satisfied with the judgment of the first-instance court, they may appeal to the Federal Court. If there is an objection to the law applied by the court, a request for judicial review can be made to the Federal Supreme Court. We don't know whether Ooki DAO will choose to continue to "lay flat" and wait for death, or to rise up and resist through appeals.