American CryptoFed registration at risk as SEC alleges filing anomalies


Disclaimer: The article has been updated based on an official response from the US CryptoFed DAO. COO Xiaomeng Zhou explained why the SEC is legally prohibited from issuing a stop order.

American CryptoFed DAO, the first decentralized autonomous organization (DAO) to receive legal recognition in the United States, is in danger of losing its registration after the US Securities and Exchange Commission (SEC) unearthed anomalies in its Form S-1 registration statement dated September 17 2021.

The Office of the Secretary of State of Wyoming recognized American CryptoFed as a legal entity in July 2021, at a time when the organization’s CEO, Marian Orr, believed that “Wyoming may be the best blockchain jurisdiction in the world.”

However, on November 18, 2022, the SEC filed an administrative proceeding against the DAO to determine the issuance of a stop order. A stop order from the SEC would revoke American CryptoFed’s registration and block the sale of internal tokens, Ducat and Locke.

According to the SEC’s Division Of Enforcement, the Form S-1 registration statement filed by American CryptoFed contains essential information, such as audited financial statements and details of its operations and management. The SEC further believed that the US CryptoFed filing contains “misleading statements and omissions” while being inconsistent in describing the tokens as securities.

In this regard, David Hirsch, head of the crypto assets and cyber unit of the enforcement division, stated that:

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

Hirsch clarified that issuers must provide required disclosure information to the SEC. However, the SEC claimed non-cooperation from American CryptoFed during its investigation of its registration statement.

Based on the information made available to the public, Hirsch shared the SEC’s intent regarding the DAO:

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

Speaking to Cointelegraph, US Chief Operations Officer and organizer Xiaomeng Zhou of CryptoFed protested the SEC’s claims, stating that the Section 8(d) Order can only apply to effective registration statements. To the extent that Section 8(d) Order is applied to the Registration Statement, which is “pending and not yet in effect,” it is applied to the wrong subject matter and is illegal because “the effectiveness of the Registration Statement” has not been determined. still existed and the Section 8(d) Order cannot stop the subject that does not exist, Zhou explained.

For the US CryptoFed DAO’s Form S-1 registration statement, which is “pending and not yet effective”, the subject of the refusal order of Section 8(b) of the Securities Act of 1933, which clearly states: “the Commission can, […] before the effective date of registration, issue an order refusing to allow such statement to take effect until amended in accordance with such order.

As a result, the U.S. 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 denial order to provide further clear guidance to American CryptoFed DAO to complete Form S-1 filing (not a 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 guidelines for completing the Form S-1 filing. However, it does not allow the federal agency to issue a stop order:

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

Cointelegraph found that the official Telegram channel for the DAO has been shut down.

American CryptoFed’s official Telegram account could not be found. Source: Cointelegraph (via Telegram)

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

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