In an enforcement action against a blockchain protocol, the Commodity Futures Trading Commission has fined bZeroX LLC and its founders $250,000 and filed suit against its successor decentralized autonomous organization Ooki DAO.

According to the CFTC’s filing Thursday, bZeroX and its founders, Tom Bean and Kyle Kistner were fined for illegally operating an organization that offered leveraged and margin trading of digital assets and failed to adopt “Know Your Customer” identification programs in compliance with the Banking Secrecy Act.

Bean and Kistner oversaw the development of bZx protocol, a decentralized protocol for lending, trading, interest generation and other financial activities on the blockchain.

The CFTC simultaneously filed suit against Ooki DAO, the successor to bZeroX, for violating the same laws. The government alleged that bZeroX transferred control of the bZx protocol to bZx DAO and then subsequently renamed it Ooki DAO in order to avoid enforcement actions.

Decentralized autonomous organizations, or DAOs, are entities with no centralized leadership in which decisions are made bottom-up, through community governance controlled by blockchain protocols and code. Community members earn a stake in the DAO by holding cryptographic tokens that provide them with privileges allowing them to vote on proposals submitted by other members of the community.

“Today’s actions demonstrate the CFTC’s commitment to aggressively pursuing individuals and their operations who purposefully seek to evade regulatory oversight at the expense of retail customers,” said CTFC Chairman Rostin Behnam. “I commend our dedicated enforcement team for pursuing this scheme which touches on many areas of concern regarding this growing market.”

Commissioner Summer Mersinger, however, took issue with the enforcement action and published a dissent stating that she could not support the commission’s action on the matter.

She agreed that the action should target bZeroX as a company and the founders as liable parties because of their part in having responsibility, but she took issue with targeting Ooki DAO and the token holders in that organization. She argued that the CTFC had no legal authority to impose sanctions against the DAO and was unfairly targeting token holders.

This action follows an expansion of enforcement actions in the United States against decentralized protocols from government agencies. Recently, the U.S. Treasury Department sanctioned Tornado Cash, a decentralized cryptocurrency mixing service that allows users to anonymize the origins of funds after accusing the service of hiding the proceeds of at least $7 billion worth of virtual currency from criminal activities since 2019.

Photo: Brian Turner/Wikimedia Commons