Compound DAO sued by plaintiffs who held only $100 in COMP tokens

Quick Take

  • Compound DAO and the other defendants in the case have been accused of selling unlicensed securities.
  • The plaintiffs say they suffered damages by holding less than $100 of COMP tokens.

Three complainants. $100. A possible class action.

Compound DAO is among eight defendants listed in a case brought by three complainants who claim they suffered damages after buying COMP tokens, which they allege are unlicensed securities sold by the defendants, according to a recently filed lawsuit that is seeking class-action status.

The lawsuit was filed on Dec. 8 in the U.S. District Court for the Northern District of California, San Francisco Division. It lists Amanda Houghton, Susan Franklin and Charles Douglas as plaintiffs on behalf of other COMP token hold.

The plaintiffs said they suffered damages by buying COMP tokens, the native token of DeFi lender Compound Finance. The suit also alleges that these damages were connected to the sale of COMP tokens as unregistered securities. 

Compound DAO is described as a general partnership in the suit. The lawsuit argued that the decentralized autonomous organization and its partners oversee the sale of COMP tokens as unlicensed securities. It also stated that the defendants made false and misleading statements about the prospect of profiting from holding COMP tokens.

Finally, the plaintiffs argued that the price of COMP has since collapsed and that the defendants are to blame. 

Apart from Compound DAO, the other defendants are Compound Finance co-founders Robert Leshner and Geoffrey Hayes. The lawsuit also listed Bain Capital Ventures, Polychain Alchemy and Paradigm Operations, among others, as co-defendants.

Compound price action

The price of COMP has largely declined over the past year. Image: CoinGecko

According to the court filing, Douglas bought $75 worth of COMP tokens when it was trading at $130 in January 2022. The other plaintiffs bought $2 and $3 worth of COMP tokens, respectively. Houghton and Franklin also earned additional COMP tokens as rewards for watching crypto adverts on their Coinbase accounts. They made $9 each for doing so, but these coins are now worth $1 apiece. Together, the named plaintiffs in the suit only held $98 worth of COMP tokens as a cost basis.

The plaintiffs, represented by Gerstein Harrow LLP and Fairmark Partners LLP, have asked the court to declare that COMP is a security. They also want the court to order Compound DAO and the other defendants to stop selling these tokens, pay damages and cover the plaintiffs' legal fees.

Neither the plaintiffs' lawyers nor Compound Labs have responded to The Block’s request for comments at the time of publishing.

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