US District Court dismisses Lido DAO’s claim of not being legal entity

The U.S. District Court for the Northern District of California ruled against Lido DAO in a major case regarding its legal status.

The decentralized autonomous organization argued that it was not a legal entity and was therefore immune from lawsuits. However, the court rejected this argument, stating that Lido DAO operated as a general partnership under California law, making it liable to take legal action.

Andrew Samuels, a former Lido DAO (LDO) token holder, initiated the lawsuit last December after suffering huge financial losses due to the plummeting value of the token.

Lido argued that the DAO and its governance token, LDO, violated federal securities laws by failing to register the token as a security.

The court accepted these arguments, emphasizing that decentralization does not exempt DAOs from compliance. This decision is in line with regulatory trends targeting organizations in the decentralized finance space.

Samuels’ legal team identified centralized control within the Lido DAO, noting that 64% of LDO tokens are held by the founders and early investors. They argued that this gave them disproportionate influence over management decisions.

The complaint also alleged that Lido DAO deliberately structured itself to evade regulatory scrutiny while allowing institutional investors such as Paradigm, Andreessen Horowitz’s a16z, and Dragonfly Digital Management to profit from unregistered securities sales.

Additionally, the court found that these investors likely played an active role in the governance and business activities of the DAO, potentially exposing them to legal liability along with the Lido DAO.

The lawsuit also cites allegations of Lido DAO’s promotional activity, including encouraging purchases of LDO tokens via social media and facilitating listings on centralized crypto exchanges.

Samuels argued that these actions were criminal and directly implicated the DAO in its financial losses. Although it purchased its tokens on secondary markets, the court determined that its promotional efforts sufficiently tied the Lido DAO to these transactions.

Lido DAO, one of the largest liquid staking protocols that manages over $30 billion in assets, according to DefiLlama data, faces great difficulties after this decision. The court’s decision sets a precedent for holding DAOs accountable under existing legal frameworks.

Samuels is seeking damages to cover financial losses, a jury trial and attorney fees. It is noteworthy that the case continues to move forward with possible impacts on the DeFi ecosystem.