When Gary Gensler took up his position at the SEC, we were promised crypto regulation, like it or not, and it seems the scrutiny hammer is continuing to come down on players in the cryptocurrency industry.
This time the watchful eye of the Securities and Exchange Commission has fallen on Wyoming-based American CryptoFed DAO LLC. American CryptoFed was attempting to register a pair of digital tokens as equity securities: the cleverly named “Locke” and “Ducat” tokens.
The SEC and American CryptoFed are having a, let’s say, difference of opinion.
In the SEC’s order instituting proceedings, the Enforcement Division alleges that on Sept. 16, 2021, American CryptoFed filed a materially deficient and misleading registration form known as a Form 10, which purported to register two digital tokens issued by American CryptoFed — called the “Ducat” and “Locke” tokens — as equity securities. The Enforcement Division alleges that the Form 10 failed to contain certain required information about the two tokens as well as about American CryptoFed’s business, management, and financial condition, including audited financial statements.
Sounds pretty serious. The CEO of American CryptoFed, Marian Orr, said that the firm was trying to discuss these issues with a recalcitrant SEC, and she disputed the SEC’s position that Ducat and Locke are “securities.” Which…makes one wonder why American CryptoFed was trying to register the tokens as equity securities in the first place.
Hold on though, there’s more.
The Enforcement Division further alleges that the Form 10 contains materially misleading statements and omissions, including inconsistent statements about whether the “Ducat” and “Locke” tokens are securities, and statements relating to American CryptoFed’s purported intention to distribute (upon the effectiveness of its Form 10) its “Locke” tokens to the public using a Form S-8, which is a registration form used for securities offered to employees through employee benefit plans, without disclosing that the “Locke” tokens may not legally be distributed pursuant to a Form S-8.
Hey, and you thought your employee benefit plan was bad.
The recent SEC order institutes administrative proceedings which will ultimately determine whether the registration of Ducat and Locke should be denied or suspended. For the time being, however, American CryptoFed’s signature tokens appear to be crypto dead.
Registration of Two Digital Tokens Halted [U.S. Securities and Exchange Commission]
U.S. securities regulator halts Wyoming crypto firm's tokens [Reuters]
For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.