Compound DAO Case Update: Judge Clears Path for COMP Token Owners to Pursue Legal Action

The Unfolding Legal Drama

Months before the recent ruling, this case burst into the public eye, with three complainants alleging deceptive practices by the defendants regarding the potential for profit with the COMP token. The heart of the matter lies in whether those controlling Compound can be classified as unregistered securities "sellers" due to their soliciting roles. Judge William H. Orrick's ruling, issued on September 20, has shed light on this critical question.

Judge Orrick's Classification

One of the pivotal outcomes of the recent ruling is Judge Orrick's classification of the majority of Compound's owners as potential "sellers" under Section 12 of the Securities Act. This classification could have profound implications for the defendants, even if they didn't directly engage in selling securities. It underscores the complexity of regulatory scrutiny in the cryptocurrency realm, where the line between solicitation and selling can be fine.

Concentration of Power

A striking facet of this case is the concentration of voting power within a handful of entities. Less than 10 individuals control over 50% of the COMP tokens, wielding significant influence over Compound's governance. The court has recognized that the plaintiffs have "plausibly alleged" that the defendants solicited the public to purchase COMP tokens, a claim that has denied the motion to dismiss the case.

What's Next?

With the motion to dismiss rejected, a case management conference is scheduled for October 10, where the legal wrangling will continue. This case is emblematic of the broader legal battles that have been engulfing the cryptocurrency industry. From former co-CEO Phillip Gillespie's disputes to the headline-grabbing controversies involving Uniswap and Binance, it's clear that regulatory scrutiny in the crypto world is heating up.

The denial of the motion to dismiss in the Compound DAO case is a pivotal moment for cryptocurrency enthusiasts and stakeholders. It reaffirms the importance of regulatory compliance in the rapidly evolving crypto landscape. As this legal saga unfolds, it serves as a stark reminder that the path to mainstream acceptance and legitimacy is not without its legal challenges. Cryptocurrency's journey into the mainstream continues to be a fascinating and complex tale, one that is being written in courtrooms around the world.

Read more: Legal Move: Binance and U.S. Affiliate Seek Dismissal of SEC Lawsuit