The Commodity Futures Trading Commission (CFTC) has submitted a motion for default judgment against Ooki DAO in the California Northern District Court.
The motion, filed on April 7, 2023, makes it clear that the CFTC requests that the Court award a permanent injunction, civil monetary penalties, and an order to remove the Ooki DAO website from the public domain.
The CFTC notes that Ooki DAO violated three separate provisions of the Act and Regulations. Thus, according to the regulator, the Court should impose three times the per-violation CMP—i.e., three times $214,514, or a total of $643,542. This fine, the CFTC says, is warranted to punish and deter future similar misconduct by the Ooki DAO and similarly situated entities.
In September 2022, the CFTC filed a federal civil enforcement action charging the Ooki DAO—a decentralized autonomous organization and successor to bZeroX that operated the same software protocol as bZeroX—with violating the law.
The complaint alleges that, from approximately June 1, 2019 to approximately August 23, 2021, the respondents designed, deployed, marketed, and made solicitations concerning a blockchain-based software protocol that accepted orders for and facilitated margined and leveraged retail commodity transactions (functioning similarly to a trading platform).
This protocol (the bZx Protocol) permitted users to contribute margin (collateral) to open leveraged positions whose ultimate value was determined by the price difference between two digital assets from the time the position was established to the time it was closed. The bZx Protocol purported to offer users the ability to engage in these transactions in a decentralized environment—i.e., without third-party intermediaries taking custody of user assets.
These transactions were unlawful because they were required to take place on a designated contract market, but did not. Additionally, by soliciting and accepting orders for and entering into retail commodity transactions with customers, and accepting money or property (or extending credit in lieu thereof) to margin these transactions, bZeroX illegally operated as an unregistered FCM.
bZeroX also failed to adopt a customer identification program as part of a Bank Secrecy Act compliance program, as required of FCMs. Bean and Kistner, who co-founded, co-owned and controlled bZeroX, were held liable as controlling persons who knowingly induced the underlying violations or failed to act in good faith.
As alleged in the complaint, on approximately August 23, 2021, bZeroX transferred control of the bZx Protocol to the bZx DAO, which subsequently renamed itself and is currently doing business as the Ooki DAO. The Ooki DAO operates the Ooki Protocol (formerly the bZx Protocol) in the exact same manner as bZeroX and thus is continuing to violate the law in the same manner as bZeroX.
By transferring control to a DAO, bZeroX’s founders touted to bZeroX community members the operations would be enforcement-proof—allowing the Ooki DAO to violate the CEA and CFTC regulations with impunity, as alleged in the federal court action. The DAO was an unincorporated association of which Bean and Kistner were actively participating members and liable for the Ooki DAO’s violations of the CEA and CFTC regulations.
