US SEC Starts Administrative Proceedings against American CryptoFed

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The US Securities and Exchange Commission (SEC) on Friday started administrative proceedings against American CryptoFed, a decentralized autonomous organization (DAO) based in Wyoming.

The regulator wants 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,” the SEC announced in statement published on Friday.

Ducat token is an algorithmic stable coin while Locke is a government token created by US CryptoFed.

The action by the US securities regulator comes more than a year after US CryptoFed filed a Form S-1 registration with the Commission. Form S-1 is an initial registration required by companies that want to offer new securities to the public. America’s CryptoFed also filed a Form 10 registration that sought to register the tokens as equity securities. However, SEC rejected the registrations.

In November last year, the regulator suspended the registration of the two tokens, claiming that the DAO had not provided information on its “business, administrative and financial conditions”. This included audited financial statements.

The company’s filing also “contained materially misleading statements and omissions, including inconsistent statements about whether the tokens are securities,” the regulator said. In the same month, the regulator issued an injunction to determine whether a suspension order should be issued against the DAO’s registration.

However, in Friday’s statement, the SEC claimed that US CryptoFed failed to cooperate with its examination of its registration statement. Regardless, Marian Orr, the company’s CEO, said CoinDesk last year that it refuted “point by point” the criticisms raised by the regulator.

Recent Developments

According to recent SEC filing, American CryptoFed in May 2022 wrote to the Commission that it will continue by issuing the tokens in July 2022. But in June, the company instead submitted a request to withdraw its registration from the Commission. The SEC said it rejected the application because “granting the withdrawal request is not consistent with the public interest and the protection of investors.”

In the SEC’s new statement, David Hirsch, Chief of the Enforcement Division’s Crypto Assets and Cyber ​​Unit, noted that an issuer that wants to offer crypto assets as securities transactions “must provide the required disclosure information to the SEC.”

“US CryptoFed not only failed to comply with the disclosure requirements of the federal securities laws, but it also claimed that the securities transactions it purports to record are not, in fact, securities transactions at all,” Hirsch said.

Are Cryptocurrencies securities?

In 2018, Jay Clayton, the former SEC Chairman, noted that most cryptocurrencies qualify as securities and should be registered with the Commission as such. In August of last year, Gary Gensler, current SEC Chairman, echoed the same thought, noting that the securities regulator counts many cryptocurrencies and tokens as securities.

As a result of this provision towards digital assets, the SEC has gone to war against crypto startups flying crypto offerings without registering them as securities.

These battles include those the regulator has fought or is fighting against creators such as Kik Interactive, which raised nearly $100 million from the sale of its “Kin” digital tokens, digital asset lender BlockFi Lending, which offers interest-bearing accounts, and Ripple Labs , which raised more than $1 billion dollars from sales of its XRP token, all without registering them as securities.

With US President Joe Biden’s recent executive order calling for harmonious regulation of the emerging cryptocurrency industry, it remains to be seen what final direction the world’s largest economy will take in regards to cryptocurrency regulation.

The US Securities and Exchange Commission (SEC) on Friday started administrative proceedings against American CryptoFed, a decentralized autonomous organization (DAO) based in Wyoming.

The regulator wants 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,” the SEC announced in statement published on Friday.

Ducat token is an algorithmic stable coin while Locke is a government token created by US CryptoFed.

The action by the US securities regulator comes more than a year after US CryptoFed filed a Form S-1 registration with the Commission. Form S-1 is an initial registration required by companies that want to offer new securities to the public. America’s CryptoFed also filed a Form 10 registration that sought to register the tokens as equity securities. However, SEC rejected the registrations.

In November last year, the regulator suspended the registration of the two tokens, claiming that the DAO had not provided information on its “business, administrative and financial conditions”. This included audited financial statements.

The company’s filing also “contained materially misleading statements and omissions, including inconsistent statements about whether the tokens are securities,” the regulator said. In the same month, the regulator issued an injunction to determine whether a suspension order should be issued against the DAO’s registration.

However, in Friday’s statement, the SEC claimed that US CryptoFed failed to cooperate with its examination of its registration statement. Regardless, Marian Orr, the company’s CEO, said CoinDesk last year that it refuted “point by point” the criticisms raised by the regulator.

Recent Developments

According to recent SEC filing, American CryptoFed in May 2022 wrote to the Commission that it will continue by issuing the tokens in July 2022. But in June, the company instead submitted a request to withdraw its registration from the Commission. The SEC said it rejected the application because “granting the withdrawal request is not consistent with the public interest and the protection of investors.”

In the SEC’s new statement, David Hirsch, Chief of the Enforcement Division’s Crypto Assets and Cyber ​​Unit, noted that an issuer that wants to offer crypto assets as securities transactions “must provide the required disclosure information to the SEC.”

“US CryptoFed not only failed to comply with the disclosure requirements of the federal securities laws, but it also claimed that the securities transactions it purports to record are not, in fact, securities transactions at all,” Hirsch said.

Are Cryptocurrencies securities?

In 2018, Jay Clayton, the former SEC Chairman, noted that most cryptocurrencies qualify as securities and should be registered with the Commission as such. In August of last year, Gary Gensler, current SEC Chairman, echoed the same thought, noting that the securities regulator counts many cryptocurrencies and tokens as securities.

As a result of this provision towards digital assets, the SEC has gone to war against crypto startups flying crypto offerings without registering them as securities.

These battles include those the regulator has fought or is fighting against creators such as Kik Interactive, which raised nearly $100 million from the sale of its “Kin” digital tokens, digital asset lender BlockFi Lending, which offers interest-bearing accounts, and Ripple Labs , which raised more than $1 billion dollars from sales of its XRP token, all without registering them as securities.

With US President Joe Biden’s recent executive order calling for harmonious regulation of the emerging cryptocurrency industry, it remains to be seen what final direction the world’s largest economy will take in regards to cryptocurrency regulation.

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