Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 1 of 19
`
`Adam S. Heder, CSB #270946
`adamh@hbclawyers.com
`Harris Berne Christensen LLP
`15350 SW Sequoia Parkway
`Portland, OR 97224
`Telephone: 503-968-1475
`Fax: 503-968-2003
` Of Attorneys for Plaintiff
`
`
`
`
`
`
`IN THE UNITED STATES DISTRICT COURT
`
`
`
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
`
`
`PETER JOHNSON, individually and on
`behalf of all others similarly situated,
`
` Case No.
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`
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`CLASS ACTION COMPLAINT
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`JURY TRIAL DEMANDED
`
`
`
`Plaintiff,
`
`
`
`
`
`
`
`v.
`
`MAKER ECOSYSTEM GROWTH
`HOLDINGS, INC., a foreign corporation;
`MAKER ECOSYSTEM GROWTH
`FOUNDATION, a foreign corporation; and
`DAI FOUNDATION, a foreign corporation;
`
`
`
`
`
`Defendants.
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`
`
`
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`Lead Plaintiff, Peter Johnson, individually and on behalf of all others similarly situated, by
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`his undersigned attorney, alleges the Defendants, three affiliated foreign companies that
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`collectively operate, run, and manage the Maker Ecosystem, a cryptocurrency platform (the three
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`entities, detailed more below, are collectively referred to herein as “Defendant” or “The Maker
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`Foundation”). Lead Plaintiff’s allegations herein are based upon personal knowledge as to himself
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`and his own acts, and upon information and belief as to all other matters based on the investigation
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`conducted by and through Plaintiff’s attorney, which included, among others things, a review of
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`1 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 2 of 19
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`press releases, media reports, interviews, and other publicly disclosed reports and information
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`about Defendant. Lead Plaintiff believes that substantial additional evidentiary support will exist
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`for the allegations set forth herein, after a reasonable opportunity for discovery.
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`SUMMARY OF ACTION
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`1.
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`This is a class action lawsuit against The Maker Foundation. Despite representing
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`that it manages a decentralized, open, digital currency platform that boasts overcollateralized (and
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`therefore secure) currency and has certain measures in place to prevent significant investor loss,
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`The Maker Foundation in fact has promoted a system that it maintains primary control and
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`ownership over while actively misrepresenting to investors in its platform (or collateralized debt
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`position holders, CDP Holders) the risks associated with it. The Maker Foundation has developed
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`and now actively promotes the use of its digital currency, DAI, which it claims is more secure and
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`stable than others because DAI are “over”-collateralized by other digital currency. Should the
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`value of that collateral drop, The Maker Foundation assures its investors, then that triggers a
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`liquidation event wherein the investor’s collateral is auctioned off to pay off the outstanding DAI
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`plus a modest, 13% liquidation penalty. Otherwise, however, a CDP Holder gets back the balance
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`of their collateral. But on March 12, 2020 – what is now known as “Black Thursday” – the value
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`of Ethereum, or ETH (a digital currency that is the primary collateral for DAI) dropped
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`dramatically, triggering mass liquidation events for CDP Holders. But instead of triggering actual
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`auctions that would have resulted in minimal, or at least mitigated, losses for its investors, The
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`Maker Foundation’s protocol instead triggered “pseudo auctions.” During a 36-hour period
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`spanning March 12-13, The Maker Foundation’s protocol allowed two bots to continuously
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`operate, buying up the liquidated CDP’s collateral in lots of 50 ETH for zero-dollar bids. In other
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`words, CDP Holders, despite being promised that auction and over-collateralization policies in
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`2 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 3 of 19
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`place would mitigate against dramatic drops in the value of collateral, instead lost 100% of the
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`collateral they invested with The Maker Foundation. CDP Holders lost $8.325 million during this
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`time of liquidation, which currently is worth over $11 million.
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`2.
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`While misrepresenting to CDP Holders the actual risks they faced, The Maker
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`Foundation neglected its responsibilities to its investors by either fostering or, at the very least,
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`allowing the conditions that led to Black Thursday, all after actively soliciting millions of dollars
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`of investment into its ecosystem.
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`3.
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`The Lead Plaintiff files this complaint in order to compensate victims of The Maker
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`Foundation’s neglect and malfeasance that directly created the conditions leading to the $0 bid
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`vulnerability that took place on Black Thursday.
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`PARTIES
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`4.
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`Lead Plaintiff Peter Johnson is an individual who at all times mentioned, was and
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`is a resident of Denver, Colorado. Mr. Johnson was an early investor in ETH (dating back to
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`March 2017) and actively participated in The Maker Foundation’s software offerings; was among
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`a handful of early Maker adopters and evangelists; became a CDP Holder himself in November
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`2018; and was entirely liquidated on Black Thursday when a singular bot bid on and won all of
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`his remaining collateral for zero dollars. Mr. Johnson had 1713.7 ETH collateral locked up in a
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`CDP with a liquidation price of $121.49 (worth $208,000 at the time of liquidation). Had the zero-
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`bid auctions not occurred and had Maker made fair compensation on its 13% penalty, Mr. Johnson
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`would have lost no less than 348 ETH of collateral (worth at least $42,000 at the time of the
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`liquidation, or $54,600 today).
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`5.
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`The Maker Foundation is a foreign company (organized and operating under the
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`laws of the Cayman Islands), with its primary place of business in California.
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`3 – Complaint
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`

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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 4 of 19
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`6.
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`Maker Ecosystem Growth Foundation is a foreign company (organized and
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`operating under the laws of the Cayman Islands), with its primary place of business in California.
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`On information and belief, Maker Ecosystem Growth Foundation is an affiliate of The Maker
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`Foundation and overlaps in the management, operation, and development of the Maker Protocol
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`(defined below) and its related ecosystem.
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`7.
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`The DAI Foundation is a foreign company (organized and operating under the laws
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`of Denmark), with its primary place of business in Denmark. On information and belief, the DAI
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`Foundation is an affiliate of The Maker Foundation and overlaps in the management, operation,
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`and development of the Maker Protocol and its related ecosystem.
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`8.
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`The Maker Foundation, Maker Ecosystem Growth Foundation, and the DAI
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`Foundation are agents of each other and in all respects relevant to the allegations herein, act on
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`each other’s behalf and jointly manage all material operations with respect to the management of
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`the Maker Protocol and its related platform and ecosystem for the trading and mining of DAI.
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`Each entity is collectively referred to herein as “Defendant” or “The Maker Foundation.”
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`JURISDICTION AND VENUE
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`9.
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`This Complaint is filed, and these proceedings are instituted, to recover damages
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`and to obtain other relief that the Lead Plaintiff and others similarly situated have sustained due to
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`Defendant’s misrepresentations and negligent maintenance of its cryptocurrency platform. The
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`Lead Plaintiff brings common-law California state-law claims.
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`10.
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`The Court has subject matter jurisdiction over this case because there is diversity
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`of citizenship among the parties, and the amount in controversy, exclusive of costs and interests,
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`exceeds $75,000.00. Accordingly, pursuant to 28 U.S.C. § 1332, the Court has subject matter
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`jurisdiction over this case.
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`4 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 5 of 19
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`11.
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`This Court has both general personal jurisdiction and specific personal jurisdiction
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`over Defendant. As to general personal jurisdiction, Defendant has expressly represented that it
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`does business out of San Francisco and Santa Cruz, California. Indeed, Defendant has expressly
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`advertised that its headquarters are located 575 Market St. San Francisco, California 94105.
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`Defendant’s key officers and employees, including but not limited to the COO, the operations
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`manager, and the head of marketing are based in and work out of either San Francisco or San
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`Mateo counties in California. Accordingly, Defendant conducts a significant, if not majority, of
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`its business throughout the state. Further, given that Defendant’s marketing, including its head of
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`marketing, is based in California, Defendant’s specific acts of deception and misrepresentation and
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`neglect, described more specifically below, occurred in California where Defendant operates.
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`12.
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`Venue is proper in this case because, pursuant to 28 U.S.C. § 1391, this venue is
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`where “a substantial part of the events or omissions giving rise to the claim occurred.”
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`INTRADISTRICT ASSIGNMENT
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`13.
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`Pursuant to Civil L.R. 3-2(c), this action occurred in San Francisco County,
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`California and should be assigned to the San Francisco Division.
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`FACTUAL ALLEGATIONS
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`I.
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`The Maker Protocol is a platform for collateralizing digital assets and “minting”
`and transacting in DAI – a unique cryptocurrency.
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`14.
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`The Maker Foundation is an organization that has developed a digital currency,
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`DAI, and more importantly the protocol and various applications necessary for minting,
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`collateralizing, and transacting the DAI. That protocol is called The Maker Protocol.
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`15.
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`At its core, the Maker Protocol involves the collateralization of digital assets (such
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`as cryptocurrencies like ETH) in order to create a “stable coin”—DAI—which is a “decentralized,
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`unbiased, collateral-backed cryptocurrency soft-pegged to the US Dollar.”
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`5 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 6 of 19
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`16.
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`DAI is a store of value, a medium of exchange, a unit of account and a standard of
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`deferred payment. And in practice, DAI is meant to be exchanged digitally between peers in
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`exchange for other digital assets or services, just like US Dollars may be exchanged for goods and
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`services.
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`II.
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`The Maker Foundation boasts that it has created a decentralized
`cryptocurrency, which means that its currency (the DAI) is governed by its
`holders, not a central bank or other centralized financial institution.
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`17.
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`Among other things, The Maker Foundation created the Maker Decentralized
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`Autonomous Organization (or MakerDAO), which enables holders of its governance token, MKR,
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`to manage the MakerDAO organization “[t]hrough a system of scientific governance involving
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`Executive Voting and Governance Polling . . . to ensure its stability, transparency, and efficiency.”
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`MKR are available to any willing buyers on any open markets that transact digital currency.
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`18.
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`The Maker Foundation has boasted that it, together with the “global Maker
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`community,” is working “to bootstrap decentralized governance of the project and drive it toward
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`complete decentralization.”
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`19.
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`In other words, MakerDAO is the governing body that sets all of the rules and
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`regulations of the Maker platform, specifically the collateral debt position (or “CDP”) terms.
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`Those rules are “codified” as the Maker Protocol. If you transact in DAI, the rules of that currency
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`are governed by MakerDAO (through the Maker Protocol). And because MakerDAO is comprised
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`of MKR holders – which can be literally anyone or any entity – then MakerDAO, and therefore
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`the governance of the Maker Protocol, is theoretically an open, decentralized, democratic platform.
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`As discussed below, however, the truth is more complex than what The Maker Foundation has
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`represented.
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`III. DAI is characterized by its collateralization, which The Maker Foundation has
`represented as a way to ensure the security of DAI-facilitated transactions.
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`6 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 7 of 19
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`20.
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`An important distinguishing characteristic of DAI is that it must be collateralized
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`by another digital currency, primarily by ETH. An individual or entity wishing to transact in or
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`otherwise procure DAI can either trade ETH (or other Ethereum tokens) directly for DAI through
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`Maker’s “Oasis” portal, purchase DAI with USD via cryptocurrency exchanges such as Coinbase,
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`or create a collateralized debt position (CDP), thereby becoming a CDP Holder. That person
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`wishing to procure DAI through a CDP may purchase $10,000 of ETH from an exchange, deposit
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`that ETH into a CDP contract as collateral, from which that person is then able to borrow against
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`their collateralized debt position by withdrawing DAI. How much ETH a person may leverage
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`into DAI, however, is subject to the Maker Protocol’s “liquidation ratio.” The Maker Protocol’s
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`Liquidation Ratio is 150% of collateral to debt. Failure to maintain that ratio results in a
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`“liquidation,” described in more detail below.
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`21.
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`By way of illustration: If an individual deposits $150 worth of ETH into a CDP,
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`then, in order to maintain the 150% collateral-to-debt ratio, that same individual may borrow
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`against that ETH only $100 worth of DAI. But of course, the value of ETH is dynamic and so, if
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`the value of the ETH drops by 50% (thereby cutting the value of the person’s $150 worth of ETH
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`to $75 worth of ETH), then suddenly that person’s $100 worth of outstanding DAI is under-
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`collateralized, and a liquidation event is triggered.
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`22.
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`As explained more below, the collateralization of the DAI, and this collateral-to-
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`debt ratio, is crucial to the events at issue in this case and ultimately what led to a whole class of
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`CDP Holders becoming liquidated. The $0 bid vulnerability that two bots took advantage of for
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`36 hours straight caused these CDP Holders to lose 100% of their initial investment, losing
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`millions of dollars of value and investment.
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`IV.
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`The Maker Foundation touted its strict collateralization requirements as a way
`to ensure the security of DAI-centered transactions and as a way of mitigating
`investor risk.
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`7 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 8 of 19
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`23.
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`As noted, when the value of the collateral supporting a cache of DAI drops below
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`the 150% described above, that automatically triggers a liquidation event.
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`24.
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`The Maker Protocol utilizes a price-feed mechanism called “oracles”—price feeds
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`provided by third parties and programs. These oracles monitor the price of ETH and thereby
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`inform
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`the Maker Protocol at
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`large whether a given CDP Holder’s DAI becomes
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`undercollateralized. As soon as it does, liquidation is supposed to occur. And when liquidation
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`happens, the CDP Holder’s collateral—the ETH deposited into the CDP—is auctioned off to settle
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`the debt with the Maker Protocol, with the balance of the ETH being returned to the CDP Holder.
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`25.
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`Significantly, The Maker Foundation and other third-party user interfaces
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`repeatedly advertised and represented to CDP Holders users that, because their CDPs would be
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`significantly overcollateralized, liquidation events would only result in a 13% liquidation penalty
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`applied against the drawn DAI amount, after which the remaining collateral would be returned to
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`the user.
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`26.
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`The Maker Foundation stated on its official Collateralized Debt Position Portal that
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`“[i]f your CDP becomes liquidated, then there is a 13% liquidation penalty that will be subtracted
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`when the locked collateral is sold.”
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`27.
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`To illustrate: A CDP Holder may have $1,000.00 in ETH collateralizing $500 in
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`DAI. The price of ETH suddenly drops, however, bringing the value of the ETH to $700. That
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`triggers a liquidation event, wherein the CDP Holder’s ETH (valued at $700) is auctioned. The
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`highest bidder, in this scenario, pays $700 for the ETH. That $700 is, in turn, used to first pay off
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`the $500 in debt (i.e., the DAI), PLUS there is a 13% liquidation penalty. The CDP Holder gets
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`to keep whatever remaining ETH there is (in this case, there would likely be some small amount
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`of ETH leftover once The Maker Foundation is paid for the debt plus the 13% penalty fee).
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`V.
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`Yet, despite The Maker Foundation’s many assurances of security,
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`8 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 9 of 19
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`transparency, and decentralization, the events of March 12, 2020, or “Black
`Thursday,” lead to massive investor losses.
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`28.
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`In the early morning hours of March 12, 2020, the price of ETH dipped significantly
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`and rapidly, dropping from over $190 the day before to a low of below $90 within several hours.
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`29.
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`From 1:00 am Pacific Time to 5:00 am Pacific Time, ETH dipped from
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`approximately $171 to under $130—a change of -23.5%.
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`30.
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`As this significant dip accelerated, the Maker Protocol triggered liquidations for
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`CDP that went below the requisite collateral-to-debt ratio of 150%.
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`31.
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`32.
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`Several issues affected the normal liquidation process, however.
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`First, the Maker Protocol’s utilized oracles—again, price feeds provided by third
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`parties and programs—failed to maintain accurate and updated prices, resulting in price reporting
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`at levels much higher than the actual spot price of ETH.
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`33.
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`Second, the crashing price caused extraordinarily high traffic on the Ethereum
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`blockchain as parties attempted to transfer or sell their digital assets; the Ethereum network
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`therefore experienced significant congestion and bottlenecking which slowed transactions by
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`orders of magnitude. To push transactions through in a timely manner, therefore, parties were
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`forced to spend upwards of ten times more than their usual transaction fees.
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`34.
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`Third, and most disastrously, the Maker Protocol's lone process of CDP liquidation
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`failed. Instead of automatically liquidating ETH held as collateral in CDPs through liquid markets
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`and subtracting the 13% liquidation fee, the Maker Protocol had established a system of auctions
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`whereby CDPs that had fallen below the requisite 150% collateral-to-debt ratio would have their
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`ETH sold in lots of 50 to bidders participating on the Maker Protocol. The Maker Foundation
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`severely limited who could participate as “Keepers” in those auctions however, restricting them to
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`coded algorithms – often referred to as "bots" – which could programmatically patrol distressed
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`9 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 10 of 19
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`CDPs, trigger liquidation, and then bid on the remaining collateral. Keepers are “persons” who
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`run these liquidation-specific “bots” on the Maker Protocol. In theory, such auctions would result
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`in multiple Keepers operating bots making bids on the liquidated collateral, encouraging the best
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`price to prevail. But during the flash crash of March 12 and 13 and its resultant network
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`congestion, only four Keepers (running multiple bots) were active. The Maker Foundation
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`operated one of the four Keeper bots, which immediately ran into technical issues and wasn’t able
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`to operate. The majority of the other Keeper bots quickly ran out of DAI liquidity and were frozen
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`out of bidding for several hours. This left only two bots participating in all the remaining bids.
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`Those two remaining bots, however, were programmed to increase their paid transaction fees
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`according to the relative network congestion and were able to successfully place numerous $0 bids
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`on liquidated ETH collateral; these two successful Keeper bots made opening bids of $0.00 on
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`multiple auctions and, because they were the lone bidders on separate CDP auctions, won hundreds
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`of auctions at no cost.
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`35.
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`In other words, in contrast with Defendant’s representations that in the event of
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`liquidation there would be only a 13% penalty applied against the drawn DAI amount (with a
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`return of all remaining collateral), CDP owners lost 100% of their collateral. Their investments
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`became, in an instant, nothing.
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`36.
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`At least one researcher concluded that, out of 3,994 liquidation transactions, 1,462
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`of them (36.6%) were realized with a 100 percent discount, and cumulative losses from these zero-
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`dollar auctions amounted to $8.325 million.
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`VI.
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`The Maker Foundation’s own neglect and malfeasance led to the events of Black
`Thursday, which could have and should have been avoided.
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`37.
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`The Maker Foundation envisioned this very scenario in its December 2017
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`whitepaper when it noted that “[a] number of unforeseen events could potentially occur” related
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`10 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 11 of 19
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`to “[p]ricing errors, irrationality and unforeseen events,” noting that “[t]he Maker community will
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`need to incentivize a sufficiently large capital pool to act as Keepers of the market in order to
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`maximize rationality and market efficiency and allow the Dai supply to grow at a steady pace
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`without major market shocks.”
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`38.
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`Despite that foresight over two years prior, The Maker Foundation did little or
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`nothing to sufficiently incentivize the creation and maintenance of adequate Keepers.
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`39. Worse, The Maker Foundation allowed for highly suspicious changes to the Maker
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`Protocol; specifically during the coding process, the Maker Protocol was adjusted multiple times
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`from an auction window of three hours down to one hour (June 26, 2019), and then from one hour
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`down to only ten minutes (October 1, 2019), allowing for even less fair market bidding.
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`40. With that change in place, Keepers which placed $0.00 bids on ETH collateral were
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`uncontested and therefore successful due to high network congestion and the difficulty of having
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`transactions mined. In short, the newly abbreviated window prevented anyone but specifically
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`programmed, bespoke Keeper bots, from participating in a meaningful auction, thereby ensuring
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`that these Keepers (owners of these custom bots) earned a windfall from the auctions and the CDP
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`holders were left with nothing.
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`41.
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`Further, The Maker Foundation tightly controls the process of programming and
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`deploying a Keeper bot, which had produced the only model code to program and deploy a bot,
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`leading to an unacceptably low number of Keepers patrolling the liquidation auctions.
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`VII. The Maker Foundation had, however, expressly advertised its services as being
`immune from the exact type of threats presented by the zero-bid auctions.
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`42.
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`On or around July 26, 2019, The Maker Foundation partnered with Coinbase—the
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`United States’ premiere cryptocurrency and digital asset exchange—to launch a tutorial for users
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`called the “Dai Advanced Task.”
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`11 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 12 of 19
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`43.
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`In the Dai Advanced Task, Coinbase users were gifted .01 ETH (roughly $2.00 at
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`the time) and taught how to generate Dai by opening a CDP with Maker through The Maker
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`Foundation’s CDP Portal.
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`44.
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`In a single weekend, the Dai Advanced Task took CDP generation from 9,000
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`CDPs in the previous 11 months to “over 10,000 CDPs” opened in one weekend.
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`45. With that unprecedented burst in user activity and training from the Dai Advanced
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`Task, the Maker Protocol never informed CDP Holders that the entirety of the CDPs could be
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`forfeited. Rather, in all materials presented to CDP creators, The Maker Foundation and other
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`third-party user interfaces informed users that, because their CDPs would be significantly
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`overcollateralized, liquidation events would only result in a 13% liquidation penalty applied
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`against the drawn DAI amount, after which the remaining collateral would be returned to the user.
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`46. Worse, The Maker Foundation prioritized and covered its own losses before those
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`of the Lead Plaintiff and other similarly situated CDP Holders. Mere days after Black Thursday,
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`The Maker Foundation began the process of minting and auctioning off new MKR to cover debts
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`that were undercollateralized as a result of the zero-dollar exploit, a process which undeniably
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`inured to the benefit of MKR holders.
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`47.
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`In summary, The Maker Foundation developed and maintained a system that
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`ensured its interests were protected (and in fact enhanced) before any of its investors. While CDP
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`Holders lost millions of dollars in investment, The Maker Foundation enhanced and lined its own
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`pockets with liquidation penalties and collateral auctions.
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`VIII. Remarkably, in fact, The Maker Foundation has acknowledged that it failed to
`properly message the risks of holding CDP, that it was aware of those risks
`(despite its public representations), and that its messaging was flat-out wrong
`and misleading.
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`12 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 13 of 19
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`48.
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`In their March 24, 2020 Governance and Risk meeting, Maker Foundation
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`members—led by Richard Brown, Maker Foundation’s Head of Core Community—addressed
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`Black Thursday specifically, and admitted that they had not messaged the risks to CDP Holders
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`that liquidation of CDPs could result in a total loss of collateral (rather than the 13% liquidation
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`penalty).
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`49.
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`The call participants—some named, others anonymous—also opined that Black
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`Thursday, and specifically the zero-dollar bid exploit, was the result of nefarious actors who had
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`extensive, highly intelligent knowledge of the Maker Protocol, suggesting that the Keeper
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`programmers were intimately familiar with and associated with the broader Maker community.
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`50.
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`Several call members dismissed concerns with the Protocol, failure to message
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`risks, and the perceived negligence on the part of The Maker Foundation, but did note that the
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`philosophy and the optics of Black Thursday weren’t “fantastic,” and that compensating effected
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`CDP Holders wouldn’t be “that big of a deal” given the relatively low amount of damages at stake.
`
`IX.
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`Further, despite its proclamation of an open, decentralized platform, The Maker
`Foundation still manages the Maker Protocol, maintains every financial
`incentive to attract more CDP Holders (and their capital), and continues to “run
`the show.”
`
`51.
`
`From its inception, every material application, component, and feature of the Maker
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`Protocol has been designed and controlled by The Maker Foundation.
`
`52.
`
`In its December 2017 White Paper, The Maker Foundation admitted its crucial and
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`central role in the Maker Protocol, stating that
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`The Maker Team plays a major role in the development and governance of the
`Maker Platform in its early days: budgeting for expenses, hiring new developers,
`seeking partnerships and institutional users, and interfacing with regulators and
`other key external stakeholders. Should the Maker Team fail in some capacity—
`for legal reasons, or due to internal problems with management—the future of
`Maker could be at risk without a proper backup plan.
`
`53.
`
`Beginning in 2016, The Maker Foundation began selling the Maker Protocol
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`13 – Complaint
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`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 14 of 19
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`governance token MKR through its forum and in private deals, and later through sell orders on
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`third party exchanges as well as its own.
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`54.
`
`Among other features, the MKR token promises to reward MKR holders, who are
`
`effectively paid the interest from CDPs and a portion of liquidation fees collected.
`
`55.
`
`Since its formation, The Maker Foundation has solicited and received investment
`
`from multiple entities since its formation, including 1confirmation, Polychain Capital, Andreesen
`
`Horowitz, Distributed Capital Partners, Scanate, FBG Capital, Wyre Capital, Walden Bridge
`
`Capital.
`
`56.
`
`In a statement made in 2017 and published on the social media website Reddit,
`
`Rune Christensen—CEO of The Maker Foundation—stated that “we sold about 25% [of MKR]
`
`and gave about 20% as salary.”
`
`57.
`
`In December 2019 sold 5.5% of the MKR token supply to Dragonfly Capital
`
`Partners and Paradigm for $27.5 million, still leaving at least a plurality, if not a majority, of MKR
`
`in the hands of The Maker Foundation and its agents and employees.
`
`58.
`
`Despite those sales, and on information and belief, The Maker Foundation—
`
`whether as an entity or together with its officers, employees, and members—still owns and controls
`
`a majority of the MKR Tokens.
`
`59.
`
`And as explained above and as further evidence of this, The Maker Foundation
`
`prioritized and covered its own losses before those of the Lead Plaintiff and other similarly situated
`
`CDP Holders. Mere days after Black Thursday, The Maker Foundation began the process of
`
`minting and auctioning off new MKR to cover debts that were undercollateralized as a result of
`
`the zero-dollar exploit, a process which undeniably inured to the benefit of MKR holders.
`
`CLASS ACTION ALLEGATIONS
`
`14 – Complaint
`
`

`

`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 15 of 19
`
`60.
`
`Lead Plaintiff brings this action as a class action pursuant to rules 23(a) and
`
`23(b)(3) of the Federal Rules of Civil Procedure on behalf of the following Class of persons:
`
`All persons or entities who held CDP on any Maker-run exchanges that
`were forced to liquidate their ETH and received zero compensation at
`auction.
`
`61.
`
`The members of the Class are so numerous that joinder of all members is
`
`impracticable. While the exact number of Class members is unknown to Lead Plaintiff at this time
`
`and can only be ascertained through appropriate discovery, Lead Plaintiff believes there are over
`
`one thousand of members in the proposed Class.
`
`62.
`
`The Class is readily ascertainable and identifiable via the blockchain itself. In fact,
`
`each and every CDP that was opened can be determined with perfect precision through the same
`
`blockchain.
`
`63.
`
`Lead Plaintiff will fairly and adequately protect the interest of the Class because
`
`Lead Plaintiff’s claims are typical and representative of the claims of all members of the Class.
`
`Lead Plaintiff suffered injury in fact when he lost no less than 348 ETH of collateral (worth at least
`
`$42,000 at the time of the liquidation, or $54,600 today).
`
`64.
`
`Lead Plaintiff’s claims are typical of the claims of all Class members, as all
`
`members of the Class are similarly affected by the events of “Black Thursday,” only the amount
`
`of loss distinguishing each.
`
`65.
`
`There are no unique defenses that may be asserted against Lead Plaintiff
`
`individually, as distinguished from the other members of the Class, and the relief sought is
`
`common to the Class. Lead Plaintiff is typical of other members of the Class, does not have any
`
`interest that is in conflict with or is antagonistic to the interests of the members of the Class, and
`
`has no conflict with any other members of the Class.
`
`66.
`
`Lead Plaintiff has retained competent counsel to represent him and the Class.
`
`15 – Complaint
`
`

`

`Case 3:20-cv-02569-LB Document 1 Filed 04/14/20 Page 16 of 19
`
`67.
`
`Questions of law and fact common to the Class that predominate over any questions
`
`that may affect only individual members of the Class, include but are not limited to:
`
`a. Whether Defendant misrepresented, intentionally or negligently, the consequences
`
`of a liquidation event on one of its exchanges;
`
`b. Whether Defendant misrepresented, intentionally or negligently, its own interest or
`
`involvement in the Keepers and therefore, its own interest in the liquidation events;
`
`c. Whether Defendant’s conduct was negligent
`
`d. The type and measure of damages suffered by Lead Plaintiff and the Class.
`
`68.
`
`A class action is superior to other available methods for the fair and efficient
`
`adjudication of this controversy since joinder of all Class members is impracticable. Furthermore,
`
`as the damages suffered by individual Class members may be relatively small, the expense and
`
`burden of individual litigation make it impossible for Class members to redress individually the
`
`wrongs done to them. In the absence of a class action, Defendant will retain the benefits of its
`
`wrongful conduct.
`
`FIRST CLAIM FOR RELIEF
`
`Negligence
`
`69.
`
`Lead Plaintiff, on behalf of himself and all others similarly situated, realleges and
`
`incorporates herein by reference each and every allegation contained in the preceding paragraphs
`
`of this Complaint.
`
`70.
`
`Defendant has a duty to CDP Holders to manage the Maker Protocol and its
`
`platform both as it has advertised and also in a reasonable, prudent, non-neg