- A California court has ruled that Lido DAO and its governing members can be sued under Californian law
- The case could set precedent for how DAOs and their investors are held accountable under securities laws
- Lido DAO was sued in 2023 by Andrew Samuels over alleged securities infractions
A federal court has ruled that Lido DAO can be sued by several defendants and major venture capital firms who have accused it of securities law violations. The plaintiff, Andrew Samuels, alleges that the DAO’s cryptocurrency tokens were unregistered securities and seeks redress for his financial losses. While the court allowed claims against prominent investors like Andreessen Horowitz and Paradigm to move forward, it dismissed the claim against Robot Ventures due to insufficient allegations of their role in Lido DAO’s governance.
Samuels Blames DAO For Losses
Andrew Samuels filed this lawsuit in late 2023, alleging that Lido DAO—a decentralized autonomous organization operating on the Ethereum blockchain—violated federal securities laws by failing to register its cryptocurrency tokens. Samuels claims he incurred financial losses after purchasing Lido tokens, which he argues were unlawfully issued. The lawsuit also names key venture capital investors, including Paradigm, Andreessen Horowitz, and Dragonfly Digital Management, asserting that they share liability as partners in Lido DAO.
The court has described the case as a pivotal moment for understanding how decentralized financial structures might face liability under traditional legal frameworks, noting that the lawsuit “presents several new and important questions about the ability of people in the crypto world to inoculate themselves from liability.”
Big Names in the Firing Line
The court’s recent ruling denied dismissal motions filed by most defendants, finding sufficient allegations of their participation in Lido DAO’s governance to proceed with the claims. Paradigm and Andreessen Horowitz, for example, were cited for their “active contributions” to Lido’s operations and governance. The court noted that Paradigm had “influenced and guided the development” of the DAO, while Andreessen Horowitz publicly stated its intent to actively participate in governance.
However, the court granted Robot Ventures’ motion to dismiss, citing a lack of evidence that it played a meaningful role in managing the DAO. The court stated that while the investor’s financial involvement was clear, there was insufficient proof of direct governance activities.
This case could set significant legal precedent for DAOs, which are often structured to avoid traditional liabilities. The court’s ruling affirms that such entities and their investors can potentially be held liable as partnerships under state law if they actively manage or profit from the DAO’s operations.
“This case underscores the need for regulatory clarity in the cryptocurrency space,” the court observed, as it allowed most claims to proceed. Samuels’ suit remains ongoing and is expected to explore these issues further in future proceedings, potentially reshaping the legal landscape for DAOs and their investors.
