The Securities and Exchange Commission (SEC) has commenced administrative proceedings against American CryptoFed DAO LLC. The company is based in Wyoming and was established under the state’s DAO law in July 2021. The Order, available here, outlines the interaction between American CryptoFed and the SEC.
According to the SEC, the action was taken to “determine whether a stop order should be issued to suspend the registration of the offer and sale of two crypto assets, the Ducat token and the Locke token.” Ducat was originally envisioned as a dollar-based stablecoin, and Locke utilized to purchase Ducat to maintain its target value.
In October of 2021, the founders sent a letter to the Commission requesting guidance on the Ducat and Locke digital assets expressing their opinion these assets were not securities, but they were “proactively” filing a Form 10 and Form S-1 to register the assets.
As a DAO [Decentralized Autonomous Organization], American CryptoFed believed it did not need to adhere (or could not) to all of the requirements as defined by the SEC when filing the above documents, as the information did not exist.
On November 10, 2021, the SEC filed an order instituting administrative proceedings declaring that the filed Form 10 was materially deficient. At this time, the S-1 was deemed not effective.
The SEC’s Enforcement Division now alleges that the Form S-1 registration statement filed by American CryptoFed on September 17, 2021, failed to contain required information about American CryptoFed’s business, management, and financial condition, such as audited financial statements and contained materially misleading statements and omissions, including inconsistent statements about whether the tokens are securities.
The SEC further claims that American CryptoFed failed to cooperate during its examination of its registration statement.
According to today’s Order, the respondents sent a letter to the SEC this past June objecting to staff requests:
“… is not reasonably calculated to lead to the discovery of relevant, admissible evidence which can rebut American CryptoFed’s assertion that American CryptoFed has No Fund Raising, No Revenue, No Costs, No Profits and No Assets and therefore there is no traditional balance sheet equation of Assets = Liabilities + Shareholder’s Equities to generate securities subject to the SEC’s jurisdiction.”
David Hirsch, Chief of the Enforcement Division’s Crypto Assets and Cyber Unit, issued the following statement:
“An issuer seeking to register the offer and sale of crypto assets as securities transactions must furnish the required disclosure information to the SEC. American CryptoFed not only failed to comply with the disclosure requirements of the federal securities laws, but it also claimed that the securities transactions they seek to register are not in fact securities transactions at all. The Enforcement Division is seeking to stop American CryptoFed’s registration to protect investors against misleading information.”
It was not immediately clear the status of American CryptoFed, and there have been no recent updates to their social media channels.
A hearing at the SEC HQ in Washington, DC, is scheduled for December 1, 2022.