Powered By:


Not content to leave the SEC in undisputed first place when it comes to regulation by enforcement, the CFTC’s recent civil enforcement action against Ooki DAO broke new ground on the CFTC’s enforcement front against decentralized autonomous organizations that violate applicable CFTC regulations (itself a worthy cause, make no mistake). The CFTC is now pursuing two innovative strategies that could have a complete chilling effect on U.S. participations in DAOs.

Contemporaneously with the civil enforcement action against Ooki DAO, the CFTC filed and settled charges against bZeroX, LLC (bZeroX), and its founders and co-owners, Tom Bean and Kyle Kistner for “illegally offering leveraged and margined retail commodity transactions in digital assets.” Between June 1, 2019 and August 23, 2021 bZeroX illegally operated the bZx Protocol, a system of smart contracts on the Ethereum blockchain that allowed users to trade in margined or leveraged retail commodity transactions in a decentralized environment (i.e., without intermediaries). According to the settlement, bZeroX could only legally conduct these activities if acting as a registered futures commission merchant (FCM) or on a registered designated contract market (DCM). However, bZeroX failed to meet either requirement.1 There was not much new in the case-and-desist order against bZeroX, Bean and Kistner.

The civil enforcement action brought the fireworks that the cease-and-desist order may have lacked. In its complaint[insert link], the CFTC argues that a DAO is “an unincorporated association” and the members of the unincorporated association are the “holders of Ooki Tokens (or of BZRX Tokens, when the Ooki DAO was doing business as the bZx DAO) who have voted those tokens to govern (e.g., to modify, operate, market, and take other actions with respect to) the Ooki Protocol (formerly named the bZx Protocol).” This approach (concluding that anyone who voted the governance token is a member of the unincorporated association and liable for its actions that violate the Commodities Exchange Act) is novel to say the least and has no foundation in any CFTC precedent, so much so that it prompted CFTC Commissioner Summer Mersinger to file a dissent that called the CFTC’s approach “regulation by enforcement.”


If that is not exciting enough, here is a kicker: Members of an unincorporated association may be held personally liable for the debts and liabilities of the association if they authorize or ratify the activity. Unlike in an LLC or a corporation, there is no limit to the liability of an individual member. In other words, if the court sides with the CFTCs position, any holder of an Ooki governance token that has voted the token could be liable for all of the DAOs liability without limit. Nucular, indeed.

But wait, there’s more! In Part 2 of the Ooki Saga we will highlight the novel service of process method approved by the court in this case.

1 The CFTC also found that bZeroX failed to adopt a customer identification program (CIP) and conduct similar diligence required by FCMs under the Bank Secrecy Act.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


Fill out the following form to receive our cryptocurrency news and analysis.

Author's Assets


Anthony Tu-Sekine | Partner

As the head of Seward & Kissel’s Blockchain and Cryptocurrency Group and a frequent commentator on all things crypto, Anthony advises clients on a wide range of evolving topics, including how to structure and issue security and utility tokens, registered and unregistered offerings of security tokens, token custody, transfer and liquidity issues, non-security opinions, and investments in crypto assets by funds and other investors. A recognized leader on physical precious metals funds, Anthony represented APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of OneGold.com, which allows investors to own gold documented on blockchain. He also:

  • Represents ShelterZoom, a leading blockchain-based SaaS contract management platform;

  • Helped form a tokenized hedge fund;

  • Provides advice in connection with ransomware payments made in cryptocurrencies; and

  • Worked with sponsors of bitcoin ETF and OTC products.

“You can work with regulators or you can really try to piss them off… If you really want to do the latter, then you should expect that they will bring every tool they have against you.”

Anthony’s thoughts on BitMEX indictment, as published in Law360 article “BitMEX Case Seen as Blessing in Disguise for Crypto Sector”


Daniel Bresler | Partner

Daniel Bresler is a partner in the Investment Management Group. He primarily represents U.S. and non-U.S. investment managers, commodity pool operators, commodity trading advisors and private funds, including hedge funds, private equity funds and commodity pools. He advises clients on a variety of securities, commodities and corporate law matters, including fund structuring and formation, derivatives regulation and Securities Exchange Act filings. In addition, Daniel assists clients in developing and implementing SEC, CFTC and NFA compliance policies and procedures and guides clients through regulatory examinations. He also represents clients in joint ventures, spinouts and other business transactions.


Philip Moustakis | Counsel

Philip Moustakis is counsel in the Government Enforcement & Internal Investigations and Blockchain & Cryptocurrency practice groups. Philip advises companies and individuals on SEC enforcement matters, other regulatory enforcement investigations, internal investigations, and blockchain-based solutions and digital assets.

Philip has represented investment managers and other financial services clients in SEC investigations involving, among other things, insider trading, market manipulation, valuation, fees and expenses, conflicts of interest, breaches of fiduciary duty, whistleblowers, and compliance and supervisory failures. Philip has advised blockchain and cryptocurrency clients on token offerings, non-fungible tokens (NFTs), and the development of decentralized finance (DeFi) solutions. Philip is quoted frequently in the press on securities law issues affecting private fund managers and blockchain companies.