Crypto investments issuer BarnBridge DAO and its founders agreed to pay $1.7 million to settle allegations from the Securities and Exchange Commission (SEC) that it offered illegal crypto securities to U.S. investors.

The Ethereum-based crypto project will shut down its structured crypto investment product, called SMART Yield, which BarnBridge had compared to “highly rated debt instruments.” Financial regulators said SMART Yield failed to register as an investment company even as it amassed $509 million from crypto investors, including some from the U.S.

While the SEC often comes after crypto companies for purported securities violations, Friday’s action is notable because it may be the first targeting a crypto startup that structured itself as a “decentralized autonomous organization,” or DAO, in which the DAO held a public vote on how to respond.

DAOs are businesses theoretically beholden to their tokenholders. In BarnBridge’s case, anyone who owned its BOND token had a say in operations. Financial startups that fashion themselves as DAOs do not always register as companies. It’s even rarer for such entities to view their products as securities that need to be registered with the SEC.

This can prove problematic if their wares are open for U.S. investors, as was the case with BarnBridge. According to the SEC, BarnBridge took no steps to prevent U.S. investors from buying into its SMART Yield product.

It accused Ward and Murray of violating registration requirements and other violations. Both agreed to pay individual civil penalties of $125,000. BarnBridge DAO itself agreed to $1,457,000 in disgorgement to the SEC. In both cases the parties did not admit to or deny the allegations.

The minutia of SEC’s allegations against SMART Yield raise questions about its broader stance on DeFi structures such as pools, lending, staking and stabelcoin returns, according to tweets from securites lawyer Drew Hinkes. But the outcome offers no sweeping answers. Because it’s a settlement it “has no precedental value,” according to Hinkes.

While the SEC has come down hard on crypto firms’ alleged violations of U.S. securities law, it is hardly a monolith. Some members of the commission – notably Hester Pierce – have previously written dissents criticizing SEC orders they see as overly burdensome on a burgeoning area of financial innovation.

Pierce filed no such dissent on Friday.

BarnBridge’s structure as a DAO found no favor with the SEC, which called it a “purportedly decentralized autonomous organization.”

In reality, according to the SEC, Murray and Ward were instrumental to the business’s day-to-day operations as well as its wonky crypto governance quirks. They held outsize portions of BarnBridge’s BOND.

“Every proposal approved by the DAO needed, and received, Ward and Murray’s votes to reach a quorum,” the SEC order read.

“This case serves as an important reminder that those laws apply to all who wish to access our capital markets, regardless of whether they are, or purport to be, incorporated, decentralized or autonomous,” Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said in a press release.

Regardless of the SEC’s opinion, BarnBridge DAO’s founders played their governance game to the end. In October they held a vote seeking approval for a settlement with the SEC. They passed it using their own tokens.

Edited by Nikhilesh De.