A federal judge in Texas handed down a default ruling against Bancor Dao, who ran the decentralized finance platform Bancor after failing to respond to online summons.
Judge Robert Pittman issued the verdict after Bancole Dao did not appear to protect himself after a subpoena posted to Dao’s forum in January 2024.
“Defendant Bancole Dao either failed to answer within the permitted time or otherwise could not protect himself, and the plaintiff demonstrated his failure,” District Court Clerk Philip Delvin wrote on March 13.
The class action lawsuit involves investors claiming they lost tens of millions of dollars as the exchange failed to fail on liquidity issues during the 2022 withdrawal spike.
Default Clerk entry for Bancor. Source: Law360
According to the plaintiff, who filed a lawsuit in May 2023, Bancor deceived investors about a non-permanent loss protection mechanism for liquidity providers, claiming that the token is unregistered security.
They said Bancor’s ILP was operating in the red and tried to cover it by launching a new product V3 that promised “some of the most competitive returns (…) without asking users to take risks.”
Invalidated losses occur within the Defi Automated Market Maker model when a liquidity provider deposits assets in the pool, with one of the tokens losing value to another person in the pool.
Bancor suspended non-permanent loss protection in June 2022, citing “hostile” market conditions.
The plaintiffs also argued that Bancor Dao is a “general non-embedded partnership” consisting of VBNT token holders, and that, according to Law360, could be sued for its capabilities.
The case was previously completely rejected as the protocol developer is not based in the US but reopened in December.
The plaintiff said the Defi platform “does not appear to be registered in a jurisdiction and does not have a physical office location, mailing address, officers, directors or appointed agents.”
Bancor is an on-chain liquidity protocol that enables automated and decentralized exchange across the blockchain. According to Defillama, the total amount is $38 million.
Related: If “limited liability” is denied, the lawsuit can be devastating for DAO
The ruling follows the precedent in a similar case in which the Commodity Futures Trading Commission won a default ruling against Ooki Dao.
A federal judge in California also ruled in November that DAO and its governing members can be sued if it contains unregistered securities.
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