The DeFi Education Fund (DEF) - a Washington DC based lobbying group - has echoed the sentiments of lawyers in the crypto industry in arguing that the Commodity Futures Trading Commission (CFTC) should not be allowed to serve court documents upon defendants to proceedings by merely posting them to a forum and chatbot.
Last month, the CFTC sued OoKi DAO alleging that it was offering margined and leveraged trading products without first registering as a futures commission merchant, or having any sufficient KYC processes. The CFTC had previously settled with bZeroX - the DAO's predecessor - and the company's directors.
DEF has followed a group of crypto lawyers and developers called LeXpunK Army by filing to join the case as an amicus curiae - or, friend of the court - arguing that the way the CFTC has approached service meant:
"token holders could be held liable for conduct committed by other parties, in a matter they had no meaningful opportunity to defend. That would yield an inequitable result, and would also chill novel and innovative forms of software development"
The CFTC brought an application in the District Court for the Northern District of California for an enforceable declaration that a forum post and a website help chatbot submission were both sufficient methods of effecting service on the OoKi DAO, as well as the members that were named as defendants. The Court ruled in the CFTC's favour that these were in fact effective methods of service.
In its amicus curiae application, the DEF noted that DAOs are not the same as centralised businesses and accordingly cannot be treated as such:
"In many cases, DAOs lack any central organization or management, and many DAO token holders often lack coordination or common objectives. As a result, DAOs will often not be 'associations' of any kind, and therefore will not be proper defendants in an enforcement action brought under the Commodity Exchange Act ('CEA'), which requires that a defendant be a 'person' (defined to include 'associations')..."
According to the DEF, the CFTC ought to prove at first instance that OoKi DAO is an association before it can be served. As the CFTC failed to do this, DEF argue, the purported service on OoKi DAO was defective and unlawful. The matter is expected to be heard within the next few weeks.
The CFTC latest move raises issues of due process and represents a marked departure from ordinary methods of service. It follows a UK High Court decision earlier this year permitting service by NFT. While the Court's attempt to incorporate new means of communication is welcome, the CFTC's latest move has raised serious concern as to whether members of the DAO will be given due opportunity to defend the case.