Wyoming DAO token registration with SEC halted over misleading statements

Wyoming DAO token registration with SEC halted over misleading statements

The U.S. Securities and Exchange Commission (SEC) has halted the registration of two tokens by a Wyoming-based decentralized autonomous organization (DAO). The watchdog alleges that the DAO made inconsistent and materially misleading statements about its tokens.

American CryptoFed DAO filed form S-1 with the regulator in September, seeking its authorization for its two new tokens—Ducat and Locke. As CoinGeek reported, the DAO claimed it would not be selling any of its tokens but was seeking to have a secondary market exist for them. 

In its filing, CryptoFed applied for registration for Ducat and Locke as utility tokens, not securities. Locke was to be the governance token with a 10 trillion maximum supply and Ducat would be a stable token.

The DAO would later file a Form 10 with the SEC, which is the general form for registration of securities. 

Now, the watchdog claims that CryptoFed’s Form 10 was materially deficient and misleading. The DAO reportedly intended to register the two tokens as securities. On October 4, the SEC returned the application to the DAO and requested the organization to amend it to correct the deficiencies or withdraw it altogether.

CryptoFed re-submitted the amended Form 10 days later, this time extensively asserting that the Ducat and Locke tokens were not securities. This was inconsistent with the statement on its cover page.

“The amendment did not address any of the identified material deficiencies,” the SEC said.

CryptoFed’s Form 10 failed to contain its financial information, audited financial statements, and other requirements. 

The form further claimed that CryptoFed would use a Form-8 to distribute Locke tokens to more than 500 entities, including banks, merchants, and municipalities. However, Form-8 is only viable when distributing securities to employees through employee benefit plans. Being a DAO, CryptoFed has no employees and is operated through smart contracts and direct voting through Locke tokens.

Despite the SEC’s guidance, CryptoFed didn’t correct these material deficiencies nor withdraw its application, leading the SEC to halt it.

“Issuers attempting to raise money from the public must provide the information necessary for investors to make informed decisions. We allege American CryptoFed made materially misleading statements and failed to provide legally required information in its registration form,” Kristina Littman, the head of the SEC Enforcement Division’s Cyber Unit commented.

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