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CFTC Bypassed Legal Requirement in Trying to Serve Ooki DAO, Crypto Supporters Claim

Mark Van Scyoc/Shutterstock

The Commodity Futures Trading Commission is trying to “create [a] novel precedent” for itself in trying to serve a lawsuit to the entirety of a decentralized autonomous organization, rather than to the DAO’s members, one of three filings pushing back against the agency’s lawsuit said.

The filings, published Monday, are responses to the CFTC’s earlier pushback against the amicus briefs filed by crypto legal consortium LeXpunK, venture-capital firms Andreessen Horowitz and Paradigm and the DeFi Education Fund.

The CFTC sued Ooki DAO in September, alleging the organization illegally offered crypto derivatives products to U.S. customers. The CFTC made similar allegations against bZeroX, a company that acted as a predecessor to Ooki.

The four original briefs argued that the CFTC’s method of serving notice on Ooki DAO’s members – which was done by posting a notice in a DAO-run forum and via a chatbot on the DAO’s website – was unlawful, and DAO members affected by the lawsuit should have been notified directly.

Because of the unorthodox nature of the notice, the CFTC had to ask the California judge overseeing the case to approve its methods. The briefs say the judge should reconsider.

The CFTC pushed back in its own filing last week, claiming that because the DAO was clearly aware of the lawsuit (its members discussed it in the DAO forum and on the DAO’s official Twitter account posted about it), notice had been properly served.

But the new briefs now say that isn't enough.

Andreessen Horowitz said in its brief Monday that the CFTC didn't describe any efforts it had made to identify members of the DAO. Under California state law, the regulator would have to try to identify individuals to serve, the filing said.

Much of the filing focuses on that argument, detailing why the venture fund believes the CFTC has failed to meet legal requirements for serving Ooki.

The arguments made by Andreesen Horowitz’s lawyers echo those of the DeFi Education Fund, which attempt to convince the court that the CFTC didn't properly serve notice and that allowing the federal regulator to skirt existing legal requirements just because the technology involved in the case is novel could risk the Constitutional right to due process.

LeXpunK alleges that the CFTC hasn't even proven that Ooki is an “unincorporated association” under the law.

“The CFTC relies upon a razor-thin metaphysical distinction between the Ooki DAO and Ooki Protocol. According to the CFTC, the Ooki Protocol is software. In contrast, (per the CFTC) the Ooki DAO is ‘a group of users of the Ooki Protocol who (a) chose not to incorporate, and (b) both held and actually voted governance tokens to participate in the business of running the Ooki Protocol pursuant to specific, publicized governance protocols.’ The CFTC claims that it ‘is not a novel proposition’ that individuals who use the same software can be deemed members of an unincorporated association by virtue of that software use. Not only is this a novel proposition, it is unprecedented. It would likely surprise Microsoft Word users to learn that editing the same document as another person is enough to form an unincorporated association,” LeXpunK said.

Paradigm didn't file a response to the CFTC’s motion by the Monday deadline.

A hearing to discuss the CFTC’s motion for alternative service is slated for Dec. 7.