A former Lido holder, Andrew Samuels, has taken legal action against the Lido decentralized autonomous organization (DAO) for allegedly offering and selling unregistered securities. The lawsuit, filed on December 17th, emphasizes Lido’s intention to avoid regulatory oversight for its illegal business practices. This article delves into the details of the class-action lawsuit and the allegations made against the Lido DAO.
Lido DAO, aiming to sidestep regulatory scrutiny, established itself as a fully decentralized organization without any legal entities. This approach allowed Lido DAO to operate outside the purview of traditional regulators. However, the lawsuit argues that this strategy violates regulatory frameworks, particularly as outlined by the U.S. Securities and Exchange Commission (SEC).
Unregistered Securities Allegations
Andrew Samuels accuses Lido DAO of deliberately offering and selling its token, LDO, as an unregistered security. In support of these allegations, the complaint cites SEC Chair Gary Gensler’s recent statement, proclaiming that, except for Bitcoin, all crypto tokens are considered securities due to the involvement of intermediaries between token issuance and investors.
Price Impact on Smaller Investors
While the Lido DAO initially catered to a small group of investors, it eventually expanded its reach by listing its token on centralized crypto exchanges, thereby exposing it to a larger audience. Unfortunately, this move led to a significant decline in the token’s price, resulting in losses for smaller investors like Samuels. The lawsuit claims that the concentration of power within the staking protocol mainly favored institutional investors, such as Dragonfly, Paradigm, Robot Ventures, and AH Capital Management, who are all named as partner defendants in the lawsuit.
Beyond bolstering their profits, the complaint contends that the Lido founders and institutional investors sought financial gain through a potential “exit” opportunity. This further solidifies the claims of illegality surrounding Lido DAO’s business operations. Additionally, due to 64% of the tokens being allocated to the founders and early investors, ordinary investors like Samuels lack the ability to exert significant influence over governance matters.
Samuels, representing other affected clients, seeks rescissory damages from Lido DAO for the losses incurred. With Lido DAO being one of the largest liquid staking protocols in the cryptocurrency industry, boasting a total value locked (TVL) of over $20 billion and a market capitalization of around $1.85 billion, the potential impact of this class-action lawsuit could be significant.
The Lido DAO finds itself embroiled in a class-action lawsuit for allegedly offering and selling unregistered securities. By positioning itself as a fully decentralized organization, Lido DAO attempted to avoid regulatory scrutiny. However, the lawsuit argues that their actions violate regulatory guidelines, pointing to SEC Chair Gary Gensler’s statement about most crypto tokens being considered securities. With smaller investors experiencing losses and the concentration of power favoring institutional investors, the lawsuit calls into question Lido DAO’s motives and governance structure. As the legal battle unfolds, the outcome could have far-reaching implications for the crypto industry and the concept of decentralized autonomous organizations.