<story><title>DAOs, Hacks and the Law</title><url>https://medium.com/@Swarm/daos-hacks-and-the-law-eb6a33808e3e</url></story><parent_chain><item><author>will_brown</author><text>That is the legal argument the article presents, but it is wrong.  Here is a quick legal analysis:&lt;p&gt;Contracts that include illegal activities, such as theft, are unenforceable. If the hacked funds get released the whole of the DAO would be legally invalid.&lt;p&gt;In other words what stopped an investor from day 1 from suing the creators of the DAO in court to get their investment back? Well the fact that there was a contract in place and that contract&amp;#x2F;DAO had not been breached, meaning the investor would lose such a lawsuit. The argument from the article is suggesting even with the hack the same is true, because its part of the contract; therefore, the contract&amp;#x2F;DAO hasn&amp;#x27;t been breached. That is where the legal argument fails.&lt;p&gt;Try contracting for any other illegal activity and see how that works out enforcing it in court. &amp;quot;Your Honor, I have a contract right here that says I paid for the drugs but they weren&amp;#x27;t delivered.&amp;quot; Just imagine, &amp;quot;Your Honor, the contract&amp;#x2F;DAO says any member can create a child DAO and steal the funds from the other investors&amp;#x2F;party to the contract...Judge they contracted to be stolen from.&amp;quot; I am predicting right now if any of those funds get released as a result of this hack, there will be criminal charges, but it will just as likely be against the creators of the DAO as the hacker. They are not shielded from liability, civilly or criminally, because the victims agreed to be victimized in a contract.&lt;p&gt;As a lawyer I have called the DAO snake oil[1] from the beginning, but mostly because it sold itself as something new legally...which it is not (of course I was downvoted). I suggested if you like the concept of a DAO, great, but start your own that is true decentralization as it really isn&amp;#x27;t much more than an Investment Club LLC. And more controversial I challenged the charade of the smart contract, again not as a concept, because they do have value legally and otherwise, but as what the DAO sold smart contracts as...a self enforcing contract, that is bullshit any real world example anyone can give me I&amp;#x27;ll come up with a real world way to breach it. 20 days ago I suggested the first DAO proposal should create: a) a group of lawyers&amp;#x2F;coders to review all proposed and funded contracts for approval; and b) an insurance company to insure both approved proposed and funded DAO contracts in the instance of bugs&amp;#x2F;errors.[2] If these hacked funds don&amp;#x27;t get released and that is not the first step members of the DAO take after cleaning up the actual DAO framework, everyone deserves the next hack.&lt;p&gt;[1] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=11707497&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=11707497&lt;/a&gt;&lt;p&gt;[2] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=11789829&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=11789829&lt;/a&gt;</text></item><item><author>stevecalifornia</author><text>&amp;quot;DAO,  I closely read your contract and agreed to execute the clause where I can withdraw eth repeatedly and only be charged for my initial withdraw.&lt;p&gt;Thank you for the $70 million.  Let me know if you draw up any other contracts I can participate in.&lt;p&gt;Regards, 0x304a554a310c7e546dfe434669c62820b7d83490&amp;quot;</text></item></parent_chain><comment><author>vmarsy</author><text>How enforceable would be a classic contract that says in very fine print:
&amp;quot;you can put money in this account, but you are aware that this is a public account, anyone opening the account using the &lt;i&gt;Recur Door&lt;/i&gt; can come and walk out with your money. You understand the risks that someone might do this one day&amp;quot;&lt;p&gt;(where the &lt;i&gt;Recur Door&lt;/i&gt; is defined as the mechanism that guy used for this &lt;i&gt;hack&lt;/i&gt;.  Also,here instead of fine print it would be replaced by a line &amp;quot;you fully understand this algorithm + source code&amp;quot; clause)&lt;p&gt;Would it be treated the same way we would treat a honest Ponzi scheme contract ? &amp;quot;You can get return on investment as long as someone else invests money after you. If you happen to be the last, you&amp;#x27;re out of luck&amp;quot;. Would such a contract be legal?</text></comment>
<story><title>DAOs, Hacks and the Law</title><url>https://medium.com/@Swarm/daos-hacks-and-the-law-eb6a33808e3e</url></story><parent_chain><item><author>will_brown</author><text>That is the legal argument the article presents, but it is wrong.  Here is a quick legal analysis:&lt;p&gt;Contracts that include illegal activities, such as theft, are unenforceable. If the hacked funds get released the whole of the DAO would be legally invalid.&lt;p&gt;In other words what stopped an investor from day 1 from suing the creators of the DAO in court to get their investment back? Well the fact that there was a contract in place and that contract&amp;#x2F;DAO had not been breached, meaning the investor would lose such a lawsuit. The argument from the article is suggesting even with the hack the same is true, because its part of the contract; therefore, the contract&amp;#x2F;DAO hasn&amp;#x27;t been breached. That is where the legal argument fails.&lt;p&gt;Try contracting for any other illegal activity and see how that works out enforcing it in court. &amp;quot;Your Honor, I have a contract right here that says I paid for the drugs but they weren&amp;#x27;t delivered.&amp;quot; Just imagine, &amp;quot;Your Honor, the contract&amp;#x2F;DAO says any member can create a child DAO and steal the funds from the other investors&amp;#x2F;party to the contract...Judge they contracted to be stolen from.&amp;quot; I am predicting right now if any of those funds get released as a result of this hack, there will be criminal charges, but it will just as likely be against the creators of the DAO as the hacker. They are not shielded from liability, civilly or criminally, because the victims agreed to be victimized in a contract.&lt;p&gt;As a lawyer I have called the DAO snake oil[1] from the beginning, but mostly because it sold itself as something new legally...which it is not (of course I was downvoted). I suggested if you like the concept of a DAO, great, but start your own that is true decentralization as it really isn&amp;#x27;t much more than an Investment Club LLC. And more controversial I challenged the charade of the smart contract, again not as a concept, because they do have value legally and otherwise, but as what the DAO sold smart contracts as...a self enforcing contract, that is bullshit any real world example anyone can give me I&amp;#x27;ll come up with a real world way to breach it. 20 days ago I suggested the first DAO proposal should create: a) a group of lawyers&amp;#x2F;coders to review all proposed and funded contracts for approval; and b) an insurance company to insure both approved proposed and funded DAO contracts in the instance of bugs&amp;#x2F;errors.[2] If these hacked funds don&amp;#x27;t get released and that is not the first step members of the DAO take after cleaning up the actual DAO framework, everyone deserves the next hack.&lt;p&gt;[1] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=11707497&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=11707497&lt;/a&gt;&lt;p&gt;[2] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=11789829&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=11789829&lt;/a&gt;</text></item><item><author>stevecalifornia</author><text>&amp;quot;DAO,  I closely read your contract and agreed to execute the clause where I can withdraw eth repeatedly and only be charged for my initial withdraw.&lt;p&gt;Thank you for the $70 million.  Let me know if you draw up any other contracts I can participate in.&lt;p&gt;Regards, 0x304a554a310c7e546dfe434669c62820b7d83490&amp;quot;</text></item></parent_chain><comment><author>tptacek</author><text>Theft has a precise legal definition. Most of what happens online isn&amp;#x27;t theft, but rather forms of &lt;i&gt;fraud&lt;/i&gt;. But the contract language used for this project makes the applicability of fraud hazy. That&amp;#x27;s the point of the article.</text></comment>