Maker Foundation Faces $28M Lawsuit
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Maker Foundation Faces $28M Lawsuit

By Abhimanyu Krishnan | News | 15 Apr 2020


Three entities associated with MakerDAO -The Maker Foundation, the DAI Foundation and Maker Ecosystem Growth Foundation - all face a new class-action lawsuit that claims that the aforementioned parties have been “actively misrepresenting to investors in its platform (or collateralized debt position holders, CDP Holders) the risks associated with it.” The complaint was filed on April 14 in the Northern District Court of California by lead plaintiff Peter Johnson, but could involve thousands of investors.

The plaintiff, represented by Adam Heder of law firm Harris Berne Christensen, cites ‘Black Thursday’ - when Ethereum’s price dropped significantly, and in which $8.325 million in the MakerDAO ecosystem was lost. The lawsuit refers to the recent $0 auctions that saw collateral being claimed for free. The filing states that Johnson had 1713.7 ETH collateral locked with a liquidation price of $121.49, and was completely liquidated.

This in turn led to liquidation of Maker’s CDPs, for which MakerDAO has a protocol, in the form of an auction, in place to limit losses. However, the plaintiff says that Black Thursday was followed by ‘pseudo auctions’,

...The Maker Foundation’s protocol allowed two bots to continuously operate, buying up the liquidated CDP’s collateral in lots of 50 ETH for zero-dollar bids...CDP Holders, despite being promised that auction and over-collateralization policies in place would mitigate against dramatic drops in the value of collateral, instead lost 100% of the collateral they invested with The Maker Foundation.

The lawsuit alleges negligence, intentional misrepresentation and negligent misrepresentation on the part of the three entities. The primary contention of the lawsuit is that Maker, despite claiming to be a decentralized stablecoin secured by collateral measures, was incapable of protecting investors from losses and that “the Maker Foundation’s own neglect and malfeasance led to the events of Black Thursday, which could have and should have been avoided.”

Johnson expects more investors to join the suit, and is claiming $8.325 million for compensation, and an additional $20 million in punitive damages.The Maker Foundation has responded, saying that it “has no comment with respect to any planned or pending legal actions.” Meanwhile, 65% of MKR holders have voted in favour of compensating the affected, but there has been no progress on this yet.


Abhimanyu Krishnan
Abhimanyu Krishnan

Technophile, cryptocurrency enthusiast and journalist.


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