CFTC levies $250K fine on bZeroX, charges Ooki DAO for regulatory violations


The Commodity Futures Trading Commission (CFTC) $250,000 It imposes fines on bZeroX, a blockchain trading protocol, and its two founders.

At the same time, the CTFC filed a federal civil enforcement action indicting Ooki DAO, the successor to bZeroX, which operated the same protocol, for illegally providing leverage and margin trading. Violation of the Bank Secrecy Act and the Commodity Exchange Act.

CFTC Acting Enforcement Director Gretchen Lowe said the action is part of the commission’s broader efforts to protect U.S. customers. In his statement, Lowe said:

โ€œMargined, leveraged or funded digital asset trading offered to U.S. retail customers must be conducted on properly registered and regulated exchanges in accordance with all applicable laws and regulations. These requirements apply equally to DAOs as well as entities with more traditional business structures.โ€

The CFTC has discovered that the bZeroX protocol operated an illegal decentralized trading service between 2019 and 2021. The protocol and its founders failed to register as a Futures Commodity Merchant (FCM) and did not employ a customer identification program.

bZeroX co-founders Tom Bean and Kyle Kistner were held accountable because the CFTC claims they were administrators who deliberately induced the violation.

The $250,000 fine and deactivation order won’t affect the US cryptocurrency market, but the ruling against Ooki DAO, which took over control of the bZx protocol in 2021, could.

The CFTC said the Ooki DAO operates the bZx protocol in the same manner as bZeroX, and that transferring control to the DAO did not exempt its founders or its members from violating CEA and CFTC regulations. I was.

“The order found that the DAO was an unincorporated entity in which Bean and Kisner actively participated and was responsible for violations of CEA and CFTC regulations by the Oki DAO,” the CFTC said in the order.

The CFTC defined the Ooki DAO as an “unincorporated entity,” and said that individual members of such an organization are liable for debt under the principles of partnership law.

“Each member of an unincorporated association organized for profit will be treated as a partner of the association and will be jointly and severally liable with the other members for the association’s debts,” the official verdict said.

A lengthy explanation of the structure of the Ooki DAO under partnership law was used to show why Bean and Kistner are still personally liable.

Most DAOs that operate trading and lending protocols are not organized in regulated structures such as LLCs. This means that its members are not protected from liability if the DAO does not comply with federal law.

The CFTC has defined a DAO member as any person holding a DAO’s native token. However, the order said it determined membership in the Ooki DAO by looking at token holders who chose to participate in “running the business” through voting.

CFTC Commissioner Summer K. Mersinger said: issued A dissenting statement criticizing the Commission’s approach to this issue.

Mersinger said that determining the liability of DAO token holders based on votes does not rely on the legal authority of the Commodity Exchange Act (CEA) and does not rely on relevant case law. She also noted that this approach constitutes blatant “regulation by enforcement” by setting policies based on new definitions and standards.

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