A federal judge in California has determined that participants in decentralized autonomous organizations (DAOs) may be legally responsible for the actions of their fellow members under state partnership laws.
This ruling emerged from a case involving Lido DAO, a prominent entity in decentralized finance.
Investor Andrew Samuels initiated the lawsuit after incurring losses from purchasing tokens issued by Lido DAO. He contended that these tokens were unregistered securities and that Lido DAO should have registered them with the US Securities and Exchange Commission (SEC). According to Samuels, the failure to register made the organization liable for his financial losses under Section 12(a)(1) of the Securities Act.
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Targeting four institutional investors—Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management, and Robot Ventures—Samuels argued that they acted as partners within Lido DAO and should bear liability. All four entities filed motions to dismiss the case, but only Robot Ventures succeeded. The court found insufficient evidence to classify Robot Ventures as a general partner within the DAO.
Judge Vince Chhabria of the US District Court for the Northern District of California ruled that Lido DAO qualifies as a general partnership under California law. This classification implies that its identifiable partners cannot evade liability for the organization's actions. The judge concluded that Paradigm, Andreessen Horowitz, and Dragonfly are general partners due to their alleged involvement in Lido DAO's governance and operations.
Miles Jennings, general counsel and head of decentralization at a16z Crypto, weighed in on the ruling on X, expressing concern over its implications for decentralized governance.
This decision means that participants may need to reassess their roles and the potential risks associated with their involvement in decentralized organizations. It also highlights the need for clearer legal frameworks to address the complexities introduced by blockchain-based entities and decentralized governance models.
In other news, local authorities in Paju, a city in South Korea, are taking steps to crack down on tax evaders who use crypto to hide their assets. What are these steps? Read the full story.
