Sushi Braces for Legal Fight After SEC Subpoena

Sushi, a decentralized exchange with almost $600M in user deposits, and its “head chef” have been subpoenaed by the Securities and Exchange Commission.

The exchange’s governance token, SUSHI, dropped 5% after Head Chef Jared Grey — a position akin to CEO — asked token holders to approve a $3M fund to cover Sushi’s expected legal expenses.

Sushi 24 hr price. Source: The Defiant Terminal https://terminal.thedefiant.io/camisubs/Unique-Combinations/Sushi-Price

The subpoena is the latest sign that US regulators can and will crack down on decentralized organizations. Most crypto advocates had until recently worked under the assumption that DAOs, like SushiSwap claims to be, would be protected from regulatory action.

“The international regulatory environment for DAOs remains in flux, and the options for contributor insurance policies remain limited,” Grey wrote in Sushi’s governance forum.

He added that Sushi was cooperating with the SEC and would not comment on an ongoing investigation. Grey declined comment when contacted by The Defiant.

Legal Defense Fund

The proposed “Sushi DAO Legal Defense Fund” would cover legal fees for protocol “core contributors” that have been active since an autumn reorganization. Half of the $3M would come from trading fees, 35% would come from grants, and the remaining 15% would come from the Sushia treasury.

Grey’s proposal calls for topping up the fund with $1M in USDT “as needed” should Sushi contributors use the original $3M allocation. Grey said the proposal was modeled after a fund recently approved by MakerDAO.

Panama Entities

In October, SUSHI holders overwhelmingly approved a proposal to create three entities in Panama and one in the Cayman Islands, with each overseeing a core function of the protocol.

Neil Bhasin, a member of Sushi’s compensation committee, said at the time the reorganization would limit “risk & exposure to all that contribute to sushi.”

Sushi To Set Up Shop In the Cayman Islands and Panama

Restructuring Plan Receives Overwhelming Support

The Defiant

Erik Voorhees, a crypto developer and outspoken advocate of censorship-resistant technology, took to social media Tuesday to argue the reorg has had the opposite effect.

“If there’s an entity, it’s not a DAO,” he wrote on Twitter. “Don’t let lawyers talk you into incorporation… unless you want to be a corporation.”

Ooki DAO

It is unclear, however, that teams that forego incorporation are spared government scrutiny.

In September, the Commodity Futures Trading Commission fined Ooki DAO, on the grounds it engaged in activities that only regulated entities called futures commission merchants (FCM) could perform.

Ooki DAO illegally offered leveraged and marginal retail commodity transactions in digital assets and agreed to pay a $250,000 penalty, the CFTC said.

SEC Actions

The subpoena also shows the SEC has not taken its eye off the crypto industry despite a relatively quiet month.

While the SEC has yet to issue any crypto-related press releases this month, it brought at least eight enforcement actions for alleged wrongdoing in crypto in the first two months of the year. Targets include crypto exchange Kraken, which allegedly offered unregistered securities in the form of a staking service, and disgraced Terra founder Do Kwon.

As of Tuesday evening New York time, 22 votes had been cast in an informal poll on the governance forum, with more than 80% in favor.