Ooki DAO loses to CFTC after refusal to contest case 

DeFi margin trading platform Ooki DAO lost its suit with the CFTC earlier this month after opting to not fight back. The default judgment has limited power to establish precedent, but other DAOs and their members should still take note, legal experts say. 

The CFTC won its case against Ooki DAO in a June 8 default judgment. The court moved ahead with a default judgment because Ooki DAO refused to offer any defense or plea. 

“Appearing before the court to defend Ooki DAO would establish someone as a member of the DAO, which might imbue that person with personal liability for the DAO’s activities,” Jason Civalleri product counsel at Grayscale, said. “Apparently the DAO’s members did not want to take on this risk.” 

The CFTC filed its suit against Ooki DAO in federal court in California last September, alleging the DAO was operating an illegal trading platform by offering “leveraged and margined” commodities. 

As part of the default judgment, Ooki DAO has been ordered to cease all operations and pay a $643,542 penalty. Other DAOs should consider the outcome and the CFTC’s case against Ooki, Civalleri said. 

“The case only establishes limited precedent because it is a default judgment, but the court’s reasoning is sound,” Civalleri said. “It’s an important reminder for DAOs and their members that just because they are acting within a DAO framework does not mean legal liability cannot apply to them.”

The judgment issued this week does not hold any of Ooki’s members personally liable, but Civalleri said that the CFTC could opt to potentially charge individuals in the future. 

Typically, the structure of LLCs and similar entities mean the company’s owners and investors are not personally responsible for fees and penalties imposed on the company. 

But that’s not usually the case when it comes to DAOs, Civalleri said. 

“An individual might not recognize that participation in a DAO (possibly even by simply holding a DAO’s token) might make them personally liable if that DAO does something illegal – unless that DAO has properly registered as an entity with limited liability,” Civalleri said. “All investors should consider this risk when joining a DAO or holding DAO tokens.”

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