Agency Alleges Ooki DAO Offered Derivatives Without a License
Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
In a care[...]
CFTC Enforcement Action Against Ooki DAO Outrages One of Its Own Commissioners (and Crypto)
The Defiant | Owen Fernau | Sep 22, 2022
Agency Alleges Ooki DAO Offered Derivatives Without a License
In a case that has roiled the crypto community and triggered a dissent from one its own officials, the U.S. Commodity Futures Trading Commission (CFTC) brought an enforcement action yesterday that challenges fundamental tenets of decentralized finance.
On Sept. 22, the regulator alleged in a lawsuit that a DAO called Ooki DAO engaged in activities that only regulated entities called futures commission merchants (FCM) can perform. The DAO illegally offered leveraged and marginal retail commodity transactions in digital assets, which are derivatives, and agreed to pay a $250,000 penalty, the CFTC said. The commission also named the venture’s founders, Tom Bean and Kyle Kistner, in the suit.
See: New U.S. Bill Gives Crypto Oversight to the CFTC
The CFTC’s actions suggest that calling an entity a DAO, or invoking token-based voting as part of an organization’s decision-making process, doesn’t necessarily protect that entity from the legal responsibilities of a traditionally regulated institution.
CFTC Commissioner Summer Mersinger - broke rank with her five fellow commissioners and said:
The action wasn’t supported by the Commodity Exchange Act, the law that regulates derivatives inssuance, and amounted “regulation by enforcement. I cannot agree with the Commission’s approach of determining liability for DAO token holders based on their participation in governance voting for a number of reasons (said in a statement). While I do not condone individuals or entities blatantly violating the [law] or our rules, we cannot arbitrarily decide who is accountable for those violations based on an unsupported legal theory amounting to regulation by enforcement while federal and state policy is developing.
See:
Gary Gensler, Chairman of the SEC Speech
Sheriff Gensler of ‘Wild West’ Cryptoville Has Drawn His Guns
Gretchen Lowe, the CFTC’s acting director of enforcement, said in a statement:
Margined, leveraged, or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations. These requirements apply equally to entities with more traditional business structures as well as to DAOs.
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