U.S. regulator CFTC wins Ooki DAO lawsuit

• Ooki ordered to pay $643,542 in penalty, stop its operations and close down its website.
• In contrast to CEXs, DAOs had so far escaped legal scrutiny due to their decentralized nature.

The U.S. Commodity Futures Trading Commission (CFTC) has won a lawsuit against Ooki DAO. A federal court has ruled that the DAO provided users with unregistered commodities.

The CFTC was granted a default judgement after Judge Orrick ruled that Ooki DAO operated an illegal trading platform and unlawfully acted as an unregistered futures commission merchant (FCM).

He ordered the DAO to pay a $643,542 penalty, suspend activities forever, and shut down its website. The group has received “permanent trading and registration bans.”

The group was also ordered to remove its content from the internet.

Unregistered offerings without following KYC norms

The original lawsuit, filed in September 2022, claimed that the DAO offered “leveraged and margined” commodities transactions to retail consumers and did not follow know-your-customer (KYC) norms when serving those traders.

CFTC also claimed that Tom Bean and Kyle Kistner, the founders of Ooki DAO’s precursor bZeroX, deliberately intended to transfer control of their non-compliant trading platform to the Ooki DAO. The agency claimed the transfer was done in order to avoid legal repercussions.

CFTC division of enforcement director Ian McGinley said,

“The founders created the Ooki DAO with an evasive purpose, and with the explicit goal of operating an illegal trading platform without legal accountability.”

McGinley further added that,

“This decision should serve as a wake-up call to anyone who believes they can circumvent the law by adopting a DAO structure, intending to insulate themselves from law enforcement and ultimately putting the public at risk.”

In contrast to centralized exchanges (CEXs), DAOs have so far escaped legal scrutiny. But it appears that things are changing for the worse for them. The Ooki DAO lawsuit was notable as it marked one of the first times a federal agency has taken action against a DAO.

Earlier, it was assumed that DAOs and decentralized exchanges were protected from regulatory scrutiny due to their decentralized nature.