The Commodities Futures Trading Commission (CFTC) has sparked strong criticism from the community after filing a federal civil enforcement action against members of decentralized autonomous organization Ooki DAO over digital asset trading violations.
In a Sept. 22 release, the CFTC stated that it had filed and simultaneously settled charges against the founders of decentralized trading platform bZeroX Tom Bean and Kyle Kistner for their role in “illegally offering leveraged and margined retail commodity transactions in digital assets”
However, the community has kicked up a fuss over a simultaneous civil enforcement action against bZeroX’s associated Ooki DAO and its members, which it alleges it operated the same software protocol as bZeroX after it was passed control of it, and thus “violating the same laws as the respondents.”
The enforcement action has drawn the ire of a number of crypto lawyers and even a CFTC commissioner with concerns it will set an unfair regulatory precedent.
In a dissenting statement on Sept. 22, CFTC commissioner Summer Mersinger noted that while she supports the CFTC’s charges against the bZeroX founders, the enforcement body is stepping into uncharted legal territory when taking action against DAO members that voted on governance proposals.
“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.”
“This approach constitutes blatant ‘regulation by enforcement’ by setting policy based on new definitions and standards never before articulated by the Commission or its staff, nor put out for public comment,” she said.
Jake Chervinsky, lawyer and head of policy at the U.S. Blockchain Association on Twitter said the enforcement action “may be the most egregious example” of regulation by enforcement in the history of crypto, and drew comparisons between the U.S. Securities and Exchange Commission and the CTFC, noting that:
“We’ve complained at length about the SEC abusing this tactic, but the CFTC has put them to shame.”
It’s deeply disappointing to see the CFTC damage its own reputation like this among those who care about the future of crypto in the United States, especially at a critical moment while it pitches itself in Congress as the right agency to regulate “digital commodity trades.”
— Jake Chervinsky (@jchervinsky) September 22, 2022
The DeFi Education Fund also chimed in by noting that…
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