SEC Halts Two Token Offerings by American CryptoFed, Pending Hearing

The Securities and Exchange Commission (SEC) has halted two token offerings by American CryptoFed DAO LLC, a Wyoming-based organization.

According to the SEC, the Division of Enforcement alleges that in September American CryptoFed filed a “materially deficient and misleading registration form known as a Form 10,” seeking to register two tokens called the “Ducat” and “Locke” tokens – as equity securities.

The SEC alleges that the Form 10 failed to contain certain required information about the two tokens as well as about American CryptoFed’s business, management, and financial condition, including audited financial statements.  Additionally, the SEC alleges that the Form 10 contains materially misleading statements and omissions, including inconsistent statements about whether the “Ducat” and “Locke” tokens are securities, and statements relating to American CryptoFed’s purported intention to distribute (upon the effectiveness of its Form 10) its “Locke” tokens to the public using a Form S-8, which is a registration form used for securities offered to employees through employee benefit plans, without disclosing that the “Locke” tokens may not legally be distributed pursuant to a Form S-8.

In September, CryptoFed issued a press release indicating it had filed a Form 10 and S-1 to become a public company. At that time, CryptoFed said the Form 10 would become effective automatically in 60 days subjecting CryptoFed to SEC’s periodic reporting requirements and making CryptoFed the “first legally recognized DAO in the USA as well as the first public DAO in the world.”

It was reported that CryptoFed was “registering both tokens as utility tokens, not securities, with Ducat as an inflation and deflation protected stable token with unlimited issuance, and Locke as the governance token whose maximum supply is capped at 10 trillion.”

CryptoFed’s stated mission is “a monetary system with zero inflation, zero deflation, and zero transaction costs.”

Wyoming is a state that has been out front in creating a jurisdiction that is digital asset friendly.

Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit, stated:

“Issuers attempting to raise money from the public must provide the information necessary for investors to make informed decisions. We allege American CryptoFed made materially misleading statements and failed to provide legally required information in its registration form.”

The SEC’s order institutes administrative proceedings to determine whether it is appropriate to deny or suspend the effective date of CryptoFed’s registration of the tokens.  American CryptoFed’s registration of the two tokens is stayed pending a determination by an administrative law judge.

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