A class-action lawsuit alleging the Maker Foundation and others associated with lending platform MakerDAO knowingly misrepresented the risks of investment has been stayed and the case sent to arbitration.
In an order last Friday, Judge Maxine Chesney granted a motion by the Maker Foundation to refer the case to the American Arbitration Association as specified in a clause in the foundation’s terms of service.
In the lawsuit filed in April, plaintiff Peter Johnson claimed the Maker Foundation, the Maker Ecosystem Growth Foundation and the Dai Foundation knowingly deceived investors, describing it as being a more secure investment than other assets because its DAI stablecoin is over-collateralized.
The plaintiff claimed he and other investors each endured six-figure losses when the price of DAI’s primary collateral, ether (ETH), dropped sharply in the March 12 “Black Thursday” crash, liquidating thousands of collateralized debt positions (CDPs) held by investors.
That was despite being assured that the over-collateralization policy would safeguard against large drops in the value of ether and result in a maximum 13% loss, Johnson claimed.
According to the project’s white paper, the 13% figure is not a hard cap but may vary dependent on internal conditions in the Maker ecosystem, though the plaintiff claimed that various Maker products state the figure is the maximum strike.
Johnson claimed to have lost more than $200,000 worth of ether during the crash.
By bringing the matter to court, Maker has argued that Johnson acted in defiance of the arbitration clause he agreed to when signing the terms of service in 2018.
Johnson attempted to counter in August, claiming Maker’s 2018 agreement was based on an outdated and “now abandoned product,” but the court rejected that claim on Friday.
Legal proceedings have now been halted until the arbitration proceedings have been settled, vacating a previously scheduled court hearing on Oct. 2.
The plaintiff had been expecting to have up to 1,000 members join the lawsuit seeking damages equivalent to the total claimed losses of around $8.325 million, plus punitive damages of $20 million.
It’s not clear how many investors had joined the class action.
Read the court document in full below: