Photo Credit: Reuters
The US Securities and Exchange Commission (SEC) halted registration for two new tokens — Ducat and Locke — issued by a decentralised autonomous organisation (DAO) called American CryptoFed DAO. The watchdog said in a statement that American CryptoFed DAO's regulatory filing contained "materially misleading statements and omissions”. The securities regulator also alleged that the American Cryptofed DAO's registration application left out necessary information about the company's business, management, and financial condition, among other omissions, and also provided inconsistent statements about whether the tokens are securities.
American CryptoFed DAO, which is also the first US-based registered decentralised organisation, had filed a Form 10 with the SEC, which is a necessary step for registering securities for trading on US exchanges in September. But according to the US SEC, the form did not have sufficient information about the two tokens the company wanted to issue. Required information about American CryptoFed was also apparently missing from the form.
In the cryptocurrency world, a decentralised autonomous organisation, or DAO, is an organisation that spreads out control to token holders rather than relying on a hierarchy, for example, a board of directors in a typical company. [DAOs] tend to use the Ethereum blockchain to function, though some have popped up on other smart contract-enabled networks.
"The SEC's order institutes administrative proceedings to determine whether it is necessary and appropriate for the protection of investors to deny or suspend the effective date of American CryptoFed's registration of the ‘Ducat' and ‘Locke' tokens," the SEC clarified in its statement.
"We allege American CryptoFed made materially misleading statements and failed to provide legally required information in its registration form," said Kristina Littman, the SEC enforcement division's cyber unit's chief.
On the flip side, American CryptoFed Chief Executive Officer Marian Orr disputed the SEC's view that the tokens are securities and said the company had been trying to discuss the issue with the SEC when the regulating agency refused to respond to the firm's October rebuttal.
"The purported 'deficiencies' the SEC referred to were the lack of attributes inherent to securities," she said in a statement acquired by Reuters. "These are attributes that the two tokens (Locke and Ducat) of a decentralised blockchain-based CryptoFed DAO monetary system will never have."
For the time being, American CryptoFed's registration of Locke and Ducat tokens await a verdict by an administrative law judge.