Attributes
Author(s): @zaatar
Recipient(s): @zaatar, @RawthiL, @jerry, @PoktNews
Category: Contract
Asking Amount: Up to $10,000
Related Proposals:
This proposal is based on and replaces PEP-67 (P.R.I.S.O.N.) . It evolved from the P.R.I.S.O.N. Revision preproposal: Investigating Nodes4All and Getting it to Repay Investors.
Summary
Nodes4All, a pooled staking service that shut down without warning last October, returned POKT stakes and unswept rewards to some investors but not all. This proposal calls for investigating why, and assisting investors with steps to recover their funds including helping them find an attorney.
THIS IS NOT A BAILOUT. It is the investors who will have to hire a lawyer and pursue legal action - not the DAO. The DAO will offer logistical support and possibly limited financial help at the outset. The DAO is not taking responsibility for the failures of Nodes4All or any losses the company has caused.
Problem
Nodes4All (N4A) had 400 or more investors, of whom many, including active community members, remain unpaid. N4A promised refunds to all its investors but has not delivered. It claims it was the victim of theft and is pursuing legal action but has offered no proof. Investors feel hopeless as N4A ignores virtually all of their communications.
This is totally unacceptable.
Pocket Reputation at Risk
Ill treatment of our investing public, even if by a private company, threatens the good name of the Pocket Network and can deter investment. If the DAO is seen to stand by idly, Pocketās reputation may suffer. On the other hand, a proactive approach will help Pocket achieve its Big Hairy Audacious Goal of having āthe most trusted infrastructure brand in crypto.ā
Strong Message Needed
Importantly, the DAO must send a strong message that it will not tolerate any mistreatment of stakers. There needs to be accountability.
Solution
This proposal has two prongs: the first is to find out what happened at N4A so that lessons can be drawn for the mutual benefit of stakers and staking services. Among other things, we will investigate N4Aās claim that it fell victim to theft.
The second prong is to help investors who have not received their due.
Under this prong, one of the first steps will be to identify the unpaid investors and their losses.
Select a Lawyer
We will work with those identified early to select a lawyer. Given that many investors signed a waiver barring them from legal action, the lawyer will be consulted confidentially at the outset on its validity. An opinion that the waiver will not stand up in court will overcome the reluctance of investors who may feel that legal action is pointless, if not detrimental to any hope of recovery. At this stage, the lawyer will discuss with investors possible fee payment arrangements, e.g., contingency fees or a share in any recovered POKT.
The next step will be to determine which investors want to participate in a claim against the principals of Nodes4All and other entities with potential liability. Once a large enough pool of investors has been assembled, it will be possible to collect contributions towards any required legal retainer. (Potential claimants include those who are dissatisfied with the refunds they received in USDC that were based on a low token price.)
Logistical Help
The DAO will act as a facilitator. Given that victims are spread across the globe and mostly donāt know one another, we can help identify them and their losses, and help assemble a group interested in exploring legal action.
We can help to find a lawyer. We can monitor the initial legal consultation and subsequent steps, so that we can report back to the DAO. It is anticipated that once a group of plaintiffs gels and the case moves forward, they will assume all of the work.
Deliverables
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determine what actually happened at N4A, how many investors have yet to receive a refund, and what amounts
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help investors find a lawyer to: (a) assist in the investigation as needed and to try to get prompt refunds without court action, (b) file and pursue a court claim if necessary, and (c) take any other action deemed appropriate
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prepare monthly updates for the DAO; the first report will issue at the end of the month following the month when this proposal passes
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report on the learnings from our investigation
Contributors:
@zaatar, @RawthiL, @Jerry, @PoktNews
Budget
$7,500 for Work by DAO Contributors
Up to $7,500 to help find and liaise with the lawyer, prepare this proposal, and coordinate its execution, trace funds on POKT blockchain, identify and correspond with aggrieved investors, and all other work. Contributors will be paid at the rate of $100 an hour. If the DAO budget runs out before the contributorsā work is done, an additional funding request may be made.
$2,500 Grant for Legal Fees
Investors will be asked to cover all legal fees including for initial steps and consultations. We recognize, however, that at the outset there may be insufficient resources due to a shortage of identified victims who are able or prepared to contribute. Therefore, if needed, the DAO will grant up to $2,500 towards initial costs and consultations. Any unused portion of the $2,500 will be used, if necessary, to fund the DAO contributorsā work.
While the goal is to have investors cover all legal costs, we do not rule out the possibility of a future vote on additional assistance.
(Investors will have to decide among themselves how to apportion the burden of legal fees. They could decide to waive or seek nominal contributions from small investors.)
Investorsā Choice
As investors will be paying the attorney, they will decide how - and how far - to proceed.
At any stage, including before a legal claim is filed, if investors are not prepared to contribute enough funds - taking into account any DAO contributions - to move forward with legal action (e.g., correspondence or negotiations with N4Aās principals), execution of the prong of this proposal that relates to helping investors will stop there. The DAO contributors will be paid for their work on this prong up to that point and for a concluding report to the DAO.
Impact of Lawyer Involvement
The expectation is that once a lawyer is involved, N4Aās principals (Henry and Patrick) will behave properly for fear of being successfully sued, possibly having to pay even more (court costs and punitive damages), and reputational damage from bad publicity. If they fail to do so, the investors can instruct counsel to proceed with a claim.
Wide Support
To date, community feedback has supported DAO action:
Dissenting Opinions
Those who invested in N4A, like any investor in crypto, knew or ought to have known the risks.
N4A investors have lost money through no fault of their own. The company promoted itself as a fractionalized pooled node-running service. Non-custodial staking was never ā and still is not - an option for those staking less than a node. When N4A appeared on the Pocket scene in early 2022, non-custodial staking was not available even for those with enough tokens to stake a node.
The Pocket DAO did not endorse N4A; that N4A announced its services in the Forum (Discourse) in no way constitutes an endorsement by the DAO. The people who feel theyāve been wronged by N4A should seek redress on their own.
These arguments are outweighed by the counterarguments set out above.
The reality is that for an individual to get redress from N4A is very difficult: many investors reside outside the U.S. and donāt know its legal system. Banding together has challenges as investors mostly donāt know who the others are.
The crypto staking industry is unregulated. This attracts bad actors - and makes it hard for victims to get redress. (Our investigation will determine if N4Aās principals or employees are ābad actors.ā) This lack of regulation is one reason why the DAO should step up. Were there a regulatory framework, investors could fall back on it for support. In its absence, we should do what we can to provide that support - rather than write such losses off to the ācasinoā of crypto.
The prospect of the DAO backing a lawsuit against a business that may be fault free will deter other businesses from participating in Pocket Network.
Companies that behave properly have nothing to fear. But any company that acts as N4A has - not returning all investors their funds as it said it would and then ignoring their pleas - can expect to get sued.
Pocketās reputation is not at risk. People are not going to stop buying POKT because a small staking company failed to return its customers their POKT.
As faultless as Pocket Network may be, do we want to be known as a project where people got ripped off? Insiders may know that Pocket did not have a hand in these losses, but the facts will be lost on the general investing public.
NOTE: @zaatar did not stake with N4A, and does not operate a staking/pooling service or hold shares in any such service. @zaatar is a former criminal lawyer.
Changes since this proposal was initially posted on March 29: (1) Up to $2,500 for help with initial legal fees and expenses if investors come up short. While still based on need, itās no longer a matching grant; (2) the names of the purported Nodes4All principals have been added: Florida residents Henry E. Habgood and Patrick James Linden.
Copyright
Copyright and related rights waived via [CC0 ](https://creativecommons.org/publicdomain/zero