US Federal Judge Rules DAO Members Accountable

A U.S. federal judge has ruled that participants in decentralized autonomous organizations (DAOs) can be held accountable for the actions of other members under state partnership laws.

On Nov. 18, Judge Vince Chhabria of the U.S. District Court for the Northern District of California determined that Lido DAO qualifies as a general partnership under California law, making its members liable for the organization’s actions.

Lido DAO Members Not Immune from Lawsuit

The ruling arose from a lawsuit filed by Andrew Samuels, who purchased tokens issued by Lido DAO.

Samuels alleged that the tokens were unregistered securities and claimed that Lido DAO should have registered them with the U.S. Securities and Exchange Commission (SEC).

“Samuels contends that because Lido DAO never registered the securities, it is liable for his losses under Section 12(a)(1) of the Securities Act,” the complaint stated.

The court ruled that Samuels sufficiently alleged that Lido DAO and its identifiable partners could not avoid liability.

The judge concluded that Lido DAO qualifies as a general partnership under California law, holding partners accountable for its activities.

Samuels specifically targeted four major institutional investors in Lido — Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management, and Robot Ventures — claiming they acted as Lido DAO partners.

While the motions to dismiss filed by Paradigm, Andreessen Horowitz, and Dragonfly were denied, Robot Ventures escaped liability due to insufficient evidence proving it was a general partner.

A Blow to Decentralized Governance

Miles Jennings, general counsel at a16z Crypto, called the ruling a “huge blow” to decentralized governance.

He warned that under the judgment, even minimal participation, such as posting in forums, could expose DAO members to liability for the actions of other members.

This landmark case could significantly impact the governance and legal accountability of DAOs moving forward.