757 F.Supp.3d 951
N.D. Cal.2024Background
- Plaintiff Andrew Samuels bought Lido DAO (LDO) crypto tokens on the Gemini exchange and lost money, alleging LDOs are unregistered securities.
- Samuels claims Lido DAO and certain large venture investors (Paradigm, Andreessen Horowitz, Dragonfly) form a general partnership under California law and are liable under Section 12(a)(1) of the Securities Act for offering unregistered securities.
- Lido DAO is organized as a decentralized autonomous organization (DAO), designed to decentralize governance via tokenholders.
- Defendants moved to dismiss, arguing Lido DAO cannot be sued (it's just software/not a legal entity), and that investor defendants are not general partners.
- The court assumed truth of the complaint's facts at the motion to dismiss stage; Lido DAO itself did not appear, but a related entity (Dolphin CL, LLC) did.
- The key questions concerned Lido DAO's suability, partnership status, investor defendants' liability, scope of 'statutory seller' under Section 12, and applicability of the Securities Act to secondary market transactions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can Lido DAO be sued as an entity? | DAO is a general partnership per California law; not immune from suit | Lido is just autonomous software, not a person or legal entity | Lido DAO can be sued; adequately alleged as a general partnership |
| Liability of Venture Investors as Partners | Paradigm, Andreessen Horowitz, and Dragonfly are active partners, thus jointly/severally liable | Investors aren't partners; no coherent partnership theory or active participation | Adequately alleged as partners (except Robot Ventures); partnership claims may proceed |
| Lido DAO's Liability as a Statutory Seller | Lido DAO solicited sale/listing/promotions of LDO, qualifying as statutory seller | Lido did not directly sell to plaintiff, and did not actively solicit plaintiff's purchase | Statutory seller coverage is broad; solicitation alleged is sufficient |
| Applicability of Section 12(a)(1) to Secondary Market Purchases | Section 12(a)(1) covers secondary market as well as primary/public offerings | Only applies to public offerings, not secondary market transactions | Section 12(a)(1) not limited to public offerings; can apply to secondary market sales |
Key Cases Cited
- Pinter v. Dahl, 486 U.S. 622 (Supreme Court interprets 'statutory seller' under Section 12 to include those who successfully solicit purchases)
- Gustafson v. Alloyd Co., 513 U.S. 561 (Supreme Court limits 'prospectus' to public offerings for Section 12(a)(2), but distinction noted v. Section 12(a)(1))
- SEC v. Phan, 500 F.3d 895 (9th Cir. states Section 5 liability applies to any unregistered security sale, not limited to initial distributions)