US Federal Judge: DAO Members Can Be Held Liable

DAO, or decentralized autonomous organization, just got a wake-up call. A recent decision of a federal judge in the United States clarified the DAO members’ legal responsibilities to other members under state partnership laws.

This move raises questions about what decentralization means in terms of legal liability. Let’s look into the Lido DAO case and its implications for other DAOs.

The Case That Changed the Game

The ruling results from a case of Lido DAO, one of the largest decentralized entities in the crypto market. An investor identifying himself as Andrew Samuels alleged that he lost money after purchasing tokens in Lido’s initial coin offering. He said that they were not registered securities. He argued that Lido DAO should have registered these tokens with the US SEC.

1) Andrew Samuels, an investor who bought around 130 Lido tokens on Gemini exchange in 2023 and then sold them at a loss a few weeks later brought the lawsuit.

Samuels contends that Lido should have registered with the Securities and Exchange Commission.

2) Andrew Samuels.…

— David Kerr (@CowrieLLC) November 20, 2024

It gets tricky here: the court ruled that Lido DAO qualifies as a general partnership under California law. This means you can hold its members responsible for the organization’s actions, even if they didn’t contribute.

Samuels named four big investors—Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management, and Robot Ventures—claiming they acted as Lido DAO partners. While Robot Ventures escaped liability due to insufficient evidence, the other three weren’t so lucky.

Today, a California judge dealt a huge blow to decentralized governance.

Under the ruling, any DAO participation (even posting in a forum) could be sufficient to hold DAO members liable for the actions of other members under general partnership laws.

It’s time to DUNA. pic.twitter.com/aKNBY7pfc9

— miles jennings (@milesjennings) November 19, 2024

What This Means for DAO Members

This ruling is a wake-up call for anyone participating in DAOs. According to Miles Jennings, general counsel at a16z Crypto, even posting in DAO forums could make members liable under general partnership laws.

We tag DAOs as decentralized, but this case highlights how their governance structures can blur the lines of responsibility. If you’re involved in decision-making or operations, you might find yourself on the hook for things other members do.

Why a16z’s uproar over the Lido DAO ruling is ‘overblown’https://t.co/A4RcjW6Ts7

— DL News (@DLNewsInfo) November 19, 2024

For DAOs, this ruling feels like a huge step backward. The idea of decentralization is to avoid traditional organizations’ legal and structural pitfalls. But now, members must weigh the risks of their involvement.

Conclusion 

Anyone into crypto and Web3 must take the Lido DAO case seriously. It raises the question of whether DAOs are outside conventional law’s jurisdiction. It teaches us that decentralization doesn’t equal an absence of regulation. If you’re part of a DAO, this ruling is a clear signal: Be aware of your risk profile. Always reconsider what governance decisions you are going to make. That’s right—decentralization got a lot more complex.

Disclaimer

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