The United States Securities and Exchange Commission (SEC) has suspended the registration of a pair of digital tokens offered by the Wyoming-based Decentralized Autonomous Organization (DAO) American Cryptofed.
In a statement, the financial regulator accused the company of providing misleading information to investors in its regulatory documents. The SEC said American Cryptofed “filed a materially deficient and misleading form” when it submitted an S-1 registration application for the Locke and Ducat tokens in September. Locke was to be used for governance, while Ducat would have been used for transactions.
The SEC also said the submission “did not contain certain required information about the two tokens as well as the business, management and financial condition of American CryptoFed, including audited financial statements.” The regulator also found that the form contained “inconsistent statements” as to whether or not the tokens were securities.
Meanwhile, Cryptofed’s U.S. CEO Marian Orr has challenged the SEC’s advice that tokens are securities. She said the company tried to discuss the issue with the SEC when the agency refused to respond to the company’s rebuttal in October.
“The so-called ‘deficiencies’ the SEC referred to were the lack of attributes inherent in securities,” Orr said. “These are attributes that the two tokens (Locke and Ducat) of a decentralized blockchain-based CryptoFed DAO monetary system will never have.”
CryptoFed bills itself as Wyoming’s first legal DAO. This happened after the state passed a much contested law allowing DAOs to seek state charter and official recognition as limited liability companies.
A more cooperative SEC
The frustrations expressed by the executive were anticipated by SEC Commissioner Hester Peirce, who believes the regulator should be more cooperative with crypto firms. She had told the Wall Street Journal that the SEC should take a more active role in working with crypto firms. Otherwise, the SEC rule compliance process would be “extremely difficult” for startups, Peirce pointed out.
She also acknowledged that a lack of clearer guidance from the regulator had often kept potentially sympathetic businesses at bay for fear they would formally fail. “I think a lot of people shy away from trying to build things in the SEC space precisely because it’s so hard to navigate,” Peirce said.
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