Paradigm rushes to defend Ooki DAO in landmark CFTC lawsuit

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Venture capital firm Web3 Paradigm has waded through increasingly choppy waters in the Commodities and Futures Trading Commission’s (CFTC) unprecedented attempt to sue a DAO in federal court.

Late Monday, attorneys for the firm filed a brief in the ongoing CFTC lawsuit against Ooki DAO, a decentralized autonomous organization affiliated with the decentralized finance company bZeroX. The CFTC bZeroX recently fined for “unlawfully offering retail commodity transactions with leverage and margin on digital assets” and for failing to collect mandatory information about customers using its services.

However, after reaching a settlement with bZeroX, the CFTC went further by suing Ooki DAO, an anonymous collective that governed aspects of bZeroX’s operations, in an attempt to seize the organization’s assets and potentially ban it. of its future activities.

Paradigm, in its filing this week, denounced the CFTC’s decision as illegal, ill-informed, dangerous and intentionally designed not to be challenged in court.

Although Paradigm is not affiliated with bZeroX or Ooki DAO, the company has filed a amicus curiae, or “friend of the court” Brief in the case this week, which means Paradigm believes it has particular insight or expertise on matters relevant to the lawsuit that the judge in the case should consider.

Last week, the judge handling the case, William Orrick of the Northern District of California of the U.S. District Court, actually I accept friend memories of two external entitiesLeXpunK, a collective of crypto lawyers and developers, and the DeFi Education Fund, a decentralized finance-focused lobbying group.

In this week’s filing, Paradigm argued that the CFTC lawsuit could permanently derail the future adoption of DAOs in America, just as the organizational structure has exploded in popularity across industries. entertainment, decentralized financeand Culture.

“The Commodity Futures Trading Commission is pursuing a liability theory that would trap countless unwary technology users and seriously threaten the viability of DAOs in the United States, pushing the development of this promising technology and its benefits overseas,” wrote Paradigm’s attorneys in the company’s brief.

At the heart of Paradigm’s argument is its problem with the CFTC’s attempt to implicate every individual who has ever voted on an Ooki DAO proposal in its lawsuit.

“The Commission appears… to suggest that the single vote on the Ooki DAO binds this voter to all other current and future participants of the Ooki DAO for all time and all endings“, we read in the brief.

The brief goes on to say that under this logic, a person who has voted versus an action would still be held responsible for that action if it was later found to be illegal.

“Holding a technology tool accountable for the actions of some of its users makes no more sense than holding the ‘Internet’ accountable for the misconduct it facilitates,” the brief argues.

Another concern, according to Paradigm, is how the CFTC attempted — or potentially, deliberately failed to attempt — to convert its action against an anonymous collective into a case against real defendants capable of defending their position in court.

The CFTC says it does not know the identities of the members of Ooki DAO and therefore only served potential defendants in the case by posting to an online forum. Judge Orrick ruled last week that it was a proper means of service, despite the fact that no Ooki DAO member responded to the forum post.

Paradigm argued that this strategy may have been an intentional ploy by the CFTC to avoid facing opposing arguments in the landmark case.

“By admitting that it has not located any individual tokenholders in the Ooki DAO while threatening to hold the tokenholders jointly and severally liable, the Commission has strongly deterred anyone from appearing and defending this action,” says the memory. “And indeed, no defendant has yet appeared.”

For Paradigm, this signals that the CFTC lawsuit is “apparently designed not to be contested.”

Paradigm did not assert at any time in its brief, however, that if illegal activity were to occur through a DAO, that activity would be discontinued. He argues only that the CFTC’s current approach—pursuing Ooki DAO in its entirety without any consideration of the agency or the motives of its constituent members—is reckless and unsound.

“When actions occur through predefined computer code – with occasional input from shifting sets of anonymous voters – assigning responsibility for a particular action can pose practical difficulties,” the memoir concludes. . “But these difficulties do not justify abandoning established legal concepts in favor of a shotgun approach to liability.”

A hearing is scheduled for Nov. 30, where the court will hear arguments from both sides — and potentially Paradigm, if Orrick accepts the company’s deal. friend short on whether the way the CFTC served the members of Ooki DAO was sufficient.

The lawsuit comes at a time when US regulators’ zeal to target crypto companies and organizations appears to be nearing a fever pitch. The Securities and Exchange Commission (SEC) recently declared it considers all global Ethereum transactions to be within its purview; last week, leaked news that the SEC is currently investigating the dominant NFT collection Bored Ape Yacht Club for securities violations.

Some experts have given their opinion on the new could have been disclosed by the SEC itselfin an effort to stave off competing federal agencies such as the CFTC in an escalating turf war for regulatory dominance in the crypto space.

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