SEC Stops Wyoming-Based DAO From Registering 2 Digital Tokens
The agency is alleging that American CryptoFed filed a “materially deficient and misleading registration form.”
The U.S. Securities and Exchange Commission (SEC) stopped a Wyoming-based decentralized autonomous organization (DAO) from registering two digital tokens as securities, the agency said on Wednesday.
In the announcement, the SEC’s Enforcement Division alleged that on Sept. 16, American CryptoFed “filed a materially deficient and misleading registration form known as a Form 10, which purported to register two digital tokens issued by the company – the ‘ducat’ and ‘locke’ tokens – as equity securities.”
The SEC alleged that this form lacked mandated information about the tokens and American CryptoFed’s business, including audited financial statements. It also alleged that the Form 10 misstated and omitted information, including whether the ducat and locke tokens are securities.
American CryptoFed CEO Marian Orr wrote in an email to CoinDesk that the company had sent a letter to the SEC on Oct. 12 that “rebutted point by point the deficiencies raised” by agency. Orr added: “If the SEC is unready to make a declaration that CryptoFed’s two tokens are not securities, to meet the spirit of Securities Laws’ transparency and disclosure, we shall argue SEC should allow our Form 10 filing to become effective in time so that we may continue disclosing material and substantial information to the SEC, related parties and the general public.”
In September, American CryptoFed filed an S-1 form to register the tokens with the SEC for use in a secondary market and in refundable auctions at a higher value than their original purchase price from CryptoFed. In the filing, the company described the ducat and locke “as utility tokens, not as securities.”
In July, Wyoming legally recognized American CryptoFed. That determination came after the state became the first in the U.S. to recognize DAOs as a type of limited liability company.
In its announcement Wednesday, the SEC also said that in an S-8 form, an SEC registration form that allows companies to offer employees securities through employment benefit plans, American CryptoFed had failed to disclose that completing the form wouldn’t legally allow the distribution of the tokens.
“Issuers attempting to raise money from the public must provide the information necessary for investors to make informed decisions,” said Kristina Littman, chief of the SEC Enforcement Division’s cyber unit. “We allege American CryptoFed made materially misleading statements and failed to provide legally required information in its registration form.”
An administrative law judge will decide whether to deny or suspend the tokens’ registration, the SEC said.
(UPDATE Nov. 12 20:27 UTC): Adds comments from American CryptoFed.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.