Disclaimer: The article has been updated based on an official response from the American CryptoFed DAO. COO Xiaomeng Zhou explained why the SEC is not legally allowed to issue a stop order.
American CryptoFed DAO, the first decentralized autonomous organization (DAO) to gain legal recognition in the United States, you risk losing your registration after the United States Securities and Exchange Commission (SEC) discovered anomalies in the Form S-1 registration statement dated December 17. September 2021.
The Wyoming Secretary of State’s office recognized American CryptoFed as a legal entity in July 2021at a time when the organization’s CEO, Marian Orr, believed that “Wyoming is arguably the top blockchain jurisdiction in the world.”
However, on November 18, 2022, the SEC commenced administrative proceedings against the DAO to determine the issuance of a stop order. An SEC stay order would deregister American CryptoFed and ban sales of internal, Ducat, and Locke tokens.
According to to the SEC Enforcement Division, the Form S-1 registration statement filed by American CryptoFed lacks vital information such as audited financial statements and details about your business and management. The SEC also believed that American CryptoFed’s filing contains “misleading statements and omissions” and is inconsistent in describing tokens as securities.
In this regard, David Hirsch, head of the crypto-assets and cyber unit of the compliance division, stated that:
“American CryptoFed not only failed to comply with the disclosure requirements of federal securities laws, but also asserted that the securities transactions they seek to record are not securities transactions at all.”
Hirsch clarified that issuers must provide required disclosure information to the SEC. However, the SEC alleged non-cooperation from American CryptoFed during its examination of its registration statement.
Based on the information made publicly available, Hirsch shared the SEC’s intent regarding the DAO:
“The Enforcement Division is trying to stop the registration of American CryptoFed to protect investors against misleading information.”
Speaking to Cointelegraph, American CryptoFed COO and organizer Xiaomeng Zhou argued against the SEC’s claims, stating that the Section 8(d) Order can only apply to effective Registration Statements. To the extent that the Section 8(d) Order applies to the Registration Statement, which is “pending and not yet effective,” it applies to the wrong subject matter and is unlawful because “the effectiveness of the registration statement ” has not been approved. it still existed and the Section 8(d) Order cannot stop the issue that does not exist, Zhou explained.
For the American CryptoFed DAO’s Form S-1 Registration Statement which is “pending and not yet effective”, it is the subject of the Order Rejecting Section 8(b) of the Securities Act of 1933 which clearly states that “The Commission can […] issue an order prior to the effective date of registration refusing to allow such statement to become effective until it has been amended pursuant to such order.
As a result, the American CryptoFed DAO’s Form S-1 is a subject of Section (a) and Section 8 (b) of the Securities Act of 1933, according to Zhou. He added:
“Section 8(b) of the Securities Act of 1933 only allows the SEC to issue a Rejection Order to provide clearer guidance for the American CryptoFed DAO to complete the Form S-1 registration (not the Stop Order) “.
Zhou reiterated that Section 8(b) of the Securities Act of 1933 allows the SEC to issue a Denial Order and provide clear guidance for completing Form S-1 registration. However, it does not allow the federal agency to issue a stay order:
“As a result, the SEC abused the Securities Act of 1933 to unlawfully delay, stop, and obstruct the legitimate disclosure of the American CryptoFed DAO through the Form S-1 Registration Statement.”
Cointelegraph discovered that the official Telegram channel for the DAO has been disabled.
However, the deletion of the Telegram account was not yet linked to the SEC investigation at the time of writing.
Related: US national crypto laws should resemble New York’s, state regulator says
The Securities and Exchange Commission of the Bahamas (SCB) recently ordered the transfer of all FTX Digital Markets (FDM) digital assets to a commission-owned digital wallet.
The Bahamas Securities and Exchange Commission assumes control of the assets of FTX Digital Markets Ltd. pic.twitter.com/IzW4PGZSJm
— Securities and Exchange Commission of the Bahamas (@SCBgov_bs) November 18, 2022
The assets were seized “for their custody”, according to an official statement shared by the SCB.