As DAO is not human, Lawyers claim that it is not to be blamed by the federal government
A group of attorneys and developers argued in a California court on Monday that decentralized autonomous organizations (DAO), collectives that frequently control operations by voting with the aid of cryptocurrency tokens, are not people and should not be classified as such. LeXpunK Army argued that the federal regulatory agency should be required to identify and serve any individuals it believes has broken federal law rather than the DAO as a whole in the Commodity Futures Trading Commission’s (CFTC) ongoing lawsuit against Ooki DAO. This position was supported by the CFTC.
Last month, while also settling charges against bZeroX, the DAO’s precursor centralized corporation, and its creators Tom Bean and Kyle Kistner, the CFTC claimed that Ooki DAO was an unincorporated association. Rostin Behnam, the chair of the Commodity Futures Trading Commission, said last week that Ooki DAO’s actions, including selling the same illegal goods that bZeroX previously sold without registering or running a know-your-customer program, were so “egregious” that the agency was forced to file charges.
However, lawyers in the cryptocurrency businesses are raising red flags about the CFTC’s method of bringing these allegations. The organization asked the court for authorization to put the lawsuit on a public forum and use a support bot to serve the entire DAO at once. This motion was briefly approved by Judge William Orrick of the Northern District of California until he responded to two requests from LeXpunK and the DeFi Education Fund for permission to file amicus papers (meaning they asked for permission to join the case). Along with its application to join, DEF prepared an amicus brief, which the judge later approved. LeXpunK had until Monday night to submit its own amicus curiae brief. Earlier on Monday, Paradigm, a cryptocurrency startup fund, urged the court to receive its own amicus brief.
In it, the group makes the case that the federal statutes of the Commodity Exchange Act, not any state considerations, should be used to determine whether a DAO is an unincorporated organization. Although the “association” is included in the CEA’s definition of “person,” nothing in the statute itself suggests that a DAO is an association, according to attorneys Stephen Palley, Samuel Moniz, and Alex Golubitsky from Brown Rudnick.
The lawsuit also expresses concern that it might be impossible for anybody to contest the precedent since serving a DAO, which the brief argues should be viewed as software, makes it impossible. If a default judgment is rendered in this case on the CFTC’s behalf, “no person will be able to question whether the CFTC’s activities in enlarging the definition of ‘person’ correspond with the standards of the APA [Administrative Procedures Act],” according to the brief. The lawyers contend that by approving the default action, the CFTC would be able to “effectively” develop a rule that does not comply with the APA.
“In short, the CFTC’s claim that Ooki DAO is a person or an organization is unsupported by any independent statutory foundation. Without this power, this Court cannot approve service on Ooki DAO, whether pursuant to FCRP 4 or otherwise, the lawyers argued. According to the brief, the CFTC does have precedent it can use to support its decision to sue those it thinks broke the law.
However, if the CFTC asserts that unnamed parties are accountable for CEA violations, the best course of action is to designate them as fictitious defendants until those parties can be located, duly served with this lawsuit in accordance with FRCP 4, and afforded a reasonable opportunity to defend themselves. This is the proper way to file and deliver a complaint against unidentified parties, according to the lawyers. The DEF and LeXpunK briefings now have a response deadline of November 7 for the CFTC. The CFTC will then have one more week to address any concerns expressed by the amici parties before all parties convene in court on November 30 to resolve the issues.
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