American CryptoFed registry under threat as SEC claims filing anomalies

Disclaimer: The article has been updated based on an official response from American CryptoFed DAO. COO Xiaomeng Zhou explained why the SEC does not have the legal authority to issue a stop order.

American CryptoFed DAO, the first Decentralized Autonomous Organization (DAO) Obtaining legal recognition in the United States is at risk of losing its registration after the United States Securities and Exchange Commission (SEC) unearthed anomalies in its September 17, 2021 Form S-1 registration statement.

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 best blockchain jurisdiction in the world.”

However, on November 18, 2022, the SEC commenced administrative proceedings against the DAO to determine whether a stop order should be placed. A stop order from the SEC would deregister American CryptoFed and block the sale of its in-house tokens, Ducat and Locke.

To to the SEC’s Division of Enforcement, Registration Form S-1 filed by American CryptoFed important information is missing such as audited financial statements and details of business and management. The SEC further found that America’s CryptoFed filing contains “misleading statements and omissions” while inconsistently referring to the tokens as securities.

In this regard, David Hirsch, Head of the Enforcement Division’s Crypto Assets and Cyber ​​Unit, stated that:

“American CryptoFed not only failed to comply with the disclosure requirements of the federal securities laws, but also claimed that the securities transactions they wish to register are in fact not securities transactions at all.”

Hirsch clarified that issuers must provide the SEC with required disclosure information. However, the SEC claimed that America’s CryptoFed was not cooperating in the review of its registration statement.

Based on the information made publicly available, Hirsch communicated the SEC’s intent regarding the DAO:

“The Enforcement Division is seeking to halt American CryptoFed’s registration to protect investors from misleading information.”

Speaking to Cointelegraph, American CryptoFed’s chief operations officer and organizer, Xiaomeng Zhou, argued against the SEC’s claims, stating that the Section 8(d) order could only apply to effective registration statements. To the extent that Section 8(d) of the Regulation 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” did not exist nor existed and the order pursuant Section 8(d) cannot stop the object 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 subject to the Opposing Order of Section 8(b) of the Securities Act of 1933, which clearly states “that the Commission, […] prior to the effective date of registration, issue an order refusing the effect of such declaration until amended in accordance with this order.

As a result, the American CryptoFed DAO’s Form S-1 is subject to 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 denial order to provide further clear guidance to America’s CryptoFed DAO on how to complete the Form S-1 registration (not the freeze order).”

Zhou reiterated that Section 8(b) of the Securities Act of 1933 allows the SEC to issue a challenge order and provide clear guidance on completing the S-1 registration form. However, it does not allow the federal agency to issue a stop order:

“As a result, the SEC abused the Securities Act of 1933 to unlawfully delay, halt and impede the American CryptoFed DAO’s legitimate disclosure through the Form S-1 Registration Statement.”

Cointelegraph noted that the official Telegram channel for the DAO has been disabled.

American CryptoFed official Telegram account not found. Source: Cointelegraph (via Telegram)

However, the deletion of the Telegram account was not linked to the SEC investigation at the time of writing.

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